Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
Amendment of the Commission's ) WT Docket No. 97-82
Rules Regarding Installment Payment)
Financing For Personal Communications)
Services (PCS) Licensees )
ORDER ON RECONSIDERATION
OF THE SECOND REPORT AND ORDER
Adopted: March 23, 1998 Released: March 24, 1998
By the Commission: Commissioners Ness and Powell concurring in part, dissenting in part, and issuing separate
statements; Commissioner Tristani issuing a statement.
TABLE OF CONTENTS
Paragraph No.
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . .1
II. Background. . . . . . . . . . . . . . . . . . . . . . . . .3
III. Overview. . . . . . . . . . . . . . . . . . . . . . . . . .7
IV. MTA-by-MTA Elections. . . . . . . . . . . . . . . . . . . 16
V. Resumption of Payments. . . . . . . . . . . . . . . . . . 21
VI. Surrender of Licenses for Reauction (Amnesty) . . . . . . 31
VII. Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 38
VIII. Disaggregation of Spectrum for Reauction . . . . . . 49
IX. Election Procedures . . . . . . . . . . . . . . . . . . . 61
X. Reauction . . . . . . . . . . . . . . . . . . . . . . . . 66
XI. Miscellaneous Matters . . . . . . . . . . . . . . . . . . 73
A. Cross Defaults . . . . . . . . . . . . . . . . . . . 73
B. No Extension of C Block Relief to Other Licensees. . 74
C. Issues Addressed in Other Proceedings or Requiring Action by Congress77
XII. Procedural Matters and Ordering Clauses . . . . . . . . . 79
Appendix A: List of Pleadings
Appendix B: Revised Rules
Appendix C: Supplemental Final Regulatory Flexibility Analysis
I. INTRODUCTION
1. On September 25, 1997, the Commission adopted a Second Report and Order and Further
Notice of Proposed Rule Making ("Second Report and Order" and "Further Notice") establishing March 31,
1998, as the deadline for broadband Personal Communications Services ("PCS") C and F block licensees to
resume installment payments. In addition, the Commission offered C block licensees a choice of three alternative
payment options in lieu of resuming payments under the terms of the original payment plan. The three options
were intended to provide limited relief to C block licensees experiencing financial difficulties, while preserving
the fairness and integrity of the auction process.
2. In response to the rulings in the Second Report and Order, we received 37 petitions for
reconsideration, 17 oppositions to the petitions, 16 replies to the oppositions, and 38 ex parte filings. After
considering the arguments raised in those filings, we generally affirm the framework established in the Second
Report and Order, but we make a few modifications designed to provide C block licensees greater flexibility in
making their elections. We believe that these changes improve upon the Second Report and Order by allowing
more existing licensees to adjust their business plans and remain in the wireless market to compete against other
providers, while also providing for the return of spectrum to the Commission so that other entrepreneurs will have
opportunities to obtain broadband PCS licenses in a reauction. In a forthcoming Order, we will address
comments filed in response to the Further Notice, which covers rules for the reauction of returned C block
licenses.
II. BACKGROUND
3. Consistent with Congress' mandate to promote the participation of small businesses and other
"designated entities" in the provision of spectrum-based services, the Commission limited eligibility in the initial
C block auctions to entrepreneurs and small businesses. The C block auction concluded on May 6, 1996, and
the subsequent reauction of defaulted licenses concluded on July 16, 1996, with a total of 90 bidders winning 493
licenses. The winning bidders were permitted to pay 90 percent of their net bid price over a period of ten years,
paying only interest for the first six years and paying both interest and principal for the remaining four years.
4. On March 31, 1997, the Wireless Telecommunications Bureau (the "Bureau") suspended the
deadline for payment of installment payments for all C block licensees. The suspension was implemented in
response to a joint request from several C block licensees seeking modification of their installment payment
obligations and to allow more time for discussions with other federal agencies concerning "the transfer of
responsibilities for certain debt functions related to [the installment payment] program." On April 28, 1997,
the Bureau extended the suspension to F block licensees. As mentioned above, on September 25, 1997, the
Commission ended this suspension and established March 31, 1998, as the deadline for C and F block licensees
to resume their installment payments.
5. After reviewing various proposals for relief, the Commission decided in the Second Report and
Order to allow each C block licensee to elect one of three options for all of its licenses in lieu of continuing
payments under the licensee's original installment payment plan. Each of the three options -- disaggregation,
amnesty, and prepayment -- was intended to provide limited relief to financially troubled licensees without
harming the integrity of the auction process. The Commission determined that further relief for F block
licensees was unnecessary.
6. In the Second Report and Order, the Commission required C block licensees to file a written
election notice on or before January 15, 1998, specifying whether they would resume payments under the terms
of the original installment payment plan or would proceed under one of the alternative options. On January 7,
1998, we postponed the election date until February 26, 1998, in order to resolve issues raised on reconsideration
before licensees submitted their elections. In addition, we announced that the reauction of spectrum surrendered
by C block licensees pursuant to their elections would begin on September 29, 1998. On February 24, 1998,
we revised both the February 26, 1998, election date and the March 31, 1998, payment resumption date. We
changed the election date to 60 days from publication of this Order in the Federal Register and the payment
resumption date to at least 30 days after the new election date.
III. OVERVIEW
7. The Commission determined in the Second Report and Order that it would serve the public
interest to provide a variety of relief mechanisms to assist C block licensees that were experiencing difficulties
in meeting the financial obligations under the installment payment plan. The Commission believed the
"extraordinary procedures" it adopted to offer relief to C block licensees appropriately balanced a number of
important policy goals. In formulating a resolution to the complex issues involved, one of the Commission's
foremost objectives was to preserve the integrity of the auction process and to maintain public confidence in the
stability of the Commission's auction rules. The Commission also believed it was essential to ensure fair and
impartial treatment for all auction participants, including winning bidders, unsuccessful bidders, and licensees
in competing services. At the same time, the Commission was cognizant of its statutory mandate to promote
economic opportunity and to encourage broad participation in the provision of spectrum-based services. In
addition, the Commission attempted to implement a workable solution in a timely manner that would facilitate
rapid introduction of service to the public without further regulatory or marketplace delay.
8. We believe the approach adopted in the Second Report and Order largely accomplishes these
objectives. The relief provided C block licensees will speed deployment of service to the public by easing lenders'
and investors' concerns regarding regulatory uncertainty and by potentially making more capital available for
investment and growth. By facilitating the provision of service to consumers, the Commission advanced
Congress' objective to promote "the development and rapid deployment of new technologies, products, and
services for the benefit of the public." In addition, the mechanisms the Commission created to help these small
businesses remain viable competitors in the marketplace furthered its statutory mandate to "promot[e] economic
opportunity and competition and ensur[e] that new and innovative technologies are readily accessible to the
American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide
variety of applicants, including small businesses . . . ." However, out of fairness to bidders that withdrew from
the auction and to maintain the integrity of the auction process, the Commission rejected proposals that would
have significantly altered the amounts paid for individual licenses. Mindful of the effect its decision would have
on future auctions, the Commission opted for a more modest approach.
9. Although we believe the decision adopted in the Second Report and Order largely should be
maintained, we believe that certain aspects of the adopted approach were overly restrictive. A number of
petitioners claim that the options presented by the Commission do not provide economically viable alternatives
for financially troubled licensees. Indeed, a frequent complaint expressed throughout the numerous petitions
is that the available options fall short of providing meaningful relief. We also received several letters from
members of Congress asking that we take additional measures to assist C block licensees.
10. After reviewing the extensive record on reconsideration, we believe that a radical departure from
the Second Report and Order is not warranted. The Second Report and Order created an innovative solution
to requests from C block licensees needing financial relief. Certain requirements, however, may constrain many
C block licensees from making use of the relief measures offered. We believe that, with a few adjustments to the
adopted approach, we can better effectuate the Commission's intent to provide C block licensees a limited
measure of relief under the unique but varied circumstances presented. We therefore will leave the basic
framework intact, but we will alter it slightly to allow licensees to be more flexible in making their elections for
licenses in different geographic areas, to use more of the down payments already on deposit, and to be more
flexible in the use of those down payments. We believe that this approach improves upon the Second Report and
Order by better enabling C block licensees to remain participants in the wireless market, which will promote
competition and the delivery of new services to the public.
11. First, we will eliminate the requirement that a licensee must make the same election for all its
licenses. Instead, a licensee may make different elections for the different Major Trading Areas ("MTAs") in
which it holds licenses. The election made for an MTA will apply to every Basic Trading Area ("BTA") license
held by the licensee in that MTA. As under the Second Report and Order, the possible elections include
resumption of payments, amnesty, prepayment, or disaggregation. As part of the modifications to the adopted
approach, we will also permit a combination of disaggregation and prepayment. Resumption of payments and
prepayment of 30 MHz licenses will remain essentially the same as in the Second Report and Order. We will,
however, modify the amnesty and disaggregation options, as follows.
12. Under the revised amnesty option, a licensee may return to the Commission licenses in any MTA
it wishes so long as it returns all its BTA licenses within the MTA. The entire outstanding debt on the returned
licenses will be forgiven. For each MTA that is returned, the licensee will have two choices, and its decision will
apply to all its BTA licenses within the MTA. If the licensee wishes to bid on those licenses it returns in the
reauction, none of the down payment associated with such licenses will be available, consistent with the Second
Report and Order. Alternatively, the licensee may opt to forgo the opportunity to bid on its returned licenses
in exchange for a credit of 70 percent of the down payment made on the licenses. This credit may be used to
prepay the entire principal owed for a retained MTA with 30 MHz licenses. This, essentially, is the prepayment
option as adopted in the Second Report and Order. Alternatively, we permit a combination of prepayment and
disaggregation, so that the licensee may prepay the entire principal owed for the retained 15 MHz licenses of an
MTA that has been disaggregated.
13. As under the Second Report and Order, a licensee that disaggregates an MTA may continue
making installment payments on the retained spectrum. However, for each disaggregated license, the licensee
will now receive credit for 40 percent of the down payment applicable to the returned 15 MHz of spectrum. This
40 percent credit may be applied only to the 15 MHz of spectrum retained from the same license. It may be used
to reduce the principal outstanding and/or to pay "Suspension Interest" (i.e., all unpaid simple interest accruing
from the date of license grant through March 31, 1998). Because the down payment applicable to the retained
spectrum will be considered the down payment for that spectrum and the licensee thus retains 100 percent of that
portion of the down payment, the licensee in effect receives a blended credit of 70 percent of the total down
payment made on the full 30 MHz license.
14. Alternatively, under our modified approach, a licensee will be allowed to prepay a disaggregated
MTA. In that case, the licensee will receive credit for 70 percent of the down payment applicable to the returned
spectrum. Because the licensee retains 100 percent of the portion of the down payment associated with the
retained portion of the license, the licensee in effect receives a blended credit of 85 percent of the total down
payment. The 70 percent credit may be applied toward the prepayment of a retained MTA with 30 MHz licenses
(so long as the retained 15 MHz license is prepaid) and/or toward the prepayment of the retained 15 MHz licenses
of an MTA that has been disaggregated.
15. In addition, we adopt the following limited modifications: (1) we extend to 90 days the 60-day
non-delinquency period for payments not made on the payment resumption date, and we impose a 5 percent late
payment fee for payments made within this 90-day non-delinquency period; (2) we instruct the Bureau to modify
the payment schedules of all C and F block licensees so that all payments will be due on the same date; (3) we
eliminate the build-out exception to the amnesty option because it is rendered moot by our modified approach;
and (4) for purposes of the rule that a licensee electing prepayment that does not have sufficient funds to prepay
all its BTA licenses within an MTA may prepay only the BTA licenses within the MTA that it can afford, we
clarify that a licensee can "afford" as many BTA licenses within an MTA that it can prepay using only the amount
of credit available to the licensee for prepayment.
IV. MTA-BY-MTA ELECTIONS
A. Background
16. Under the Second Report and Order, a licensee was not permitted to make more than one
election. Therefore, whatever election was chosen would apply to all licenses held by the licensee. For practical
purposes, there was a limited mixing of options to the extent that payments would have to be resumed under the
terms of the original installment plan with respect to any licenses not halved under the disaggregation option and
any licenses retained under the build-out exception to the amnesty option. Licensees were precluded, however,
from forming any other combinations among the options. For example, a licensee could not prepay some licenses
and disaggregate others.
B. Discussion
17. By offering a menu of options, the Commission attempted to accommodate the fact that different
licensees face different circumstances. However, the requirement that a licensee make the same election for all
its licenses failed to account for the situation where a licensee faces different circumstances in its different license
areas. We believe that licensees will be able to take better advantage of the varied benefits of the options if they
are allowed to make different elections for the different areas in which they hold licenses. Therefore, we eliminate
the requirement that a licensee must make the same election for all its licenses. We agree with NextWave and
other parties that instead we should allow a licensee to make one election for each MTA in which it holds
licenses. In other words, the same election must be applied to each BTA license held in a given MTA, but
different elections may be selected for different MTAs. For this purpose, the available elections that may be
applied to an MTA are the resumption of payments under the existing installment payment plan, amnesty,
prepayment, disaggregation, and a combination of disaggregation and prepayment. These elections are discussed
in detail below.
18. We believe the MTA is the appropriate unit for making an election for similar reasons that the
Commission previously determined it was an appropriate cut-off point. We do not believe licensees should be
permitted to make elections on a BTA-by-BTA basis. As the Commission stated in the Second Report and
Order, allowing options to be applied at the BTA level would threaten the interdependency of licenses and would
limit the potential for aggregation of licenses within an MTA. It also would permit licensees to "cherry-pick"
the most desirable markets within an area. The return of only the less desirable markets would discourage
participation in the reauction and could substantially delay the deployment of service to those areas. This danger
does not exist at the MTA level because MTAs are large enough market areas that the value of an MTA would
not be diminished if it was surrendered and its neighboring MTAs were not.
19. By allowing elections to be made on an MTA-by-MTA basis, we enable licensees to make
election decisions that are not based solely on the elements of each option, but rather on their own business plans
and financial situation. For example, a licensee may be successfully financing its license holdings on the east
coast but experiencing difficulties in financing its west coast holdings. Under the approach adopted in the Second
Report and Order, the prepayment option was the only means by which the licensee could return its west coast
licenses while keeping its east coast licenses. We believe that the decision to retain or surrender licenses in an
MTA should depend on the particular circumstances surrounding those licenses. The decision should not be
driven by the terms of the options or by unrelated circumstances in other areas, which might dictate a universal
election unsuitable for the licenses in that MTA.
20. Further, we believe that MTA-by-MTA elections will promote rapid deployment of service to
the public. Licensees will have more opportunity to localize their business plans by surrendering licenses in
markets where success now seems unlikely due to financial difficulties. As a result, they will be able to focus on
providing service in those markets where they have retained their licenses. In addition, the surrendered licenses
presumably will be reauctioned to entities better positioned to provide service in those license areas. Indeed, we
anticipate that MTA-by-MTA elections will produce a more robust and competitive reauction. We expect more
licenses to be returned for reauction because a licensee choosing disaggregation or resumption will now be free
to surrender licenses it was reluctant to keep, but was forced to do so under the previous terms of those elections.
Allowing those licenses to be reauctioned to entities that are more committed, or better able, to serve those
markets will stimulate competition and benefit consumers. Furthermore, permitting elections on an MTA-by-MTA basis will not undermine the integrity of the auction process because licensees still must pay the full amount
of their licenses.
V. RESUMPTION OF PAYMENTS
A. Background
21. In the Second Report and Order, the Commission rescinded, effective March 31, 1998, the
Bureau's prior suspension of the deadline for all broadband PCS C block and F block installment payments.
All payments due and owing after March 31, 1998, were to be made in accordance with the terms of each
licensee's Note, associated Security Agreement, and the Commission's Orders and regulations. The Commission
stated that all rules regarding installment payments and defaults for the broadband PCS C and F blocks would
remain in effect, except as modified by the Second Report and Order. The Commission ruled that any licensee
that failed to remit the payment due on March 31, 1998, and remained delinquent for more than 60 days (in other
words, failed to make the March 31, 1998, payment on or before May 30, 1998), would be in default on its
license. As the Commission noted, the 60-day non-delinquency period was an exception to existing Commission
rules that provide for an automatic 90-day non-delinquency period for each installment payment.
22. The Commission directed in the Second Report and Order that Suspension Interest would
become due and payable over a two-year period, beginning on March 31, 1998, on which date broadband PCS
C and F block licensees would be required to submit one-eighth of the Suspension Interest. After March 31,
1998, one-eighth of the Suspension Interest was to be paid along with each regular installment payment on each
subsequent payment due date until the Suspension Interest had been fully paid. Payment due dates would
conform to those indicated in the Notes executed by the licensees.
23. On February 24, 1998, we issued an order revising the March 31, 1998, payment resumption
date. We stated that the payment resumption date would be at least 30 days after the date on which C block
licensees must file a written election notice specifying their decision to resume payments under the terms of the
original installment payment plan or to proceed under one of the alternative options. The election date was
postponed in the same February 24, 1998, order to 60 days after publication of this reconsideration order in the
Federal Register. As we stated in that order, the Bureau will announce the specific dates for election and
payment resumption as soon as this reconsideration order is published. B. Discussion
24. By the time they must resume making payments, C and F block licensees will have enjoyed a
respite from their payment obligations substantially longer than one year. Several parties, however, seek a much
longer deferral of the payment deadline. We do not find their requests persuasive. No matter what deadline we
establish, it is inevitable that some licensees will seek more time to pay. As stated in the Second Report and
Order, a more extensive deferral would be unfair to unsuccessful bidders that might not have withdrawn from
the auction had they known of deferral opportunities. The Commission properly rejected a further deferral
because it did "not wish to adopt temporary solutions such as those that might only postpone these difficulties
and further prolong uncertainty." We agree with parties that urge the Commission to reject any attempts to
extend further the suspension of payments.
25. Although we will not grant the lengthy postponement requested by some parties, we will provide
modest relief by extending the non-delinquency period for licensees that fail to meet the payment resumption
deadline. In response to Urban Communicators' request, we will extend to 90 days the automatic 60-day non-delinquency period applicable to payments due on the payment resumption date. As mentioned above, the
Commission's rules allow a 90-day non-delinquency period for all other installment payments. Although we
stated in the Second Report and Order that a shorter non-delinquency period was justified in light of the one-year
payment suspension, we now believe that it is preferable to make the length of that non-delinquency period
consistent with our rule for all other payments. We are providing this 30-day extension to assist licensees that
are experiencing last-minute delays in raising capital. We believe that by offering this additional time, we will
help these licensees complete their fund-raising efforts.
26. Consistent with our rule for all other payments, payments made within this 90-day non-delinquency period will be assessed the 5 percent late payment fee that we recently adopted. However, in light
of the more than one-year suspension and this expanded non-delinquency period, we believe that a subsequent
grace period is not warranted. Therefore, there will be no subsequent automatic grace period for licensees that
fail to make payment within the 90-day non-delinquency period. Subsequent payments, due after the initial
resumption payment, will be subject to the rules adopted in the Part I Third Report and Order.
27. Under this plan, the Suspension Period (as defined in the Second Report and Order) will still
end on March 31, 1998. All interest accrued from the date of license grant through March 31, 1998, (i.e.,
Suspension Interest) will continue to be payable over eight equal payments. Interest accrued from April 1, 1998,
through the payment resumption date will be due on the payment resumption date, in addition to one-eighth of
the Suspension Interest. We believe that this plan will require licensees continuing under an installment payment
plan, either through resumption or disaggregation, to demonstrate their financial viability by making a reasonable
payment on the payment resumption date. This payment will evidence the ability of licensees to access the capital
necessary to both service their government debt obligations and provide service to the public. In addition, we
instruct the Bureau to modify the payment schedule so that all C and F block installment payments will be due
on a quarterly basis, beginning on the payment resumption date.
28. We reject Urban Communicators' suggestion that Suspension Interest be forgiven, as well as its
alternative proposals that Suspension Interest be paid either in a balloon at the end of the ten-year installment
payment period or over six years in conjunction with other interest payments. Because the Commission already
has provided sufficient relief by granting the one-year suspension, we will neither forgive nor defer payment of
the Suspension Interest. The Commission has accommodated licensees sufficiently by allowing payment of the
Suspension Interest over eight equal payments.
29. We also reject requests from parties seeking a deviation from the payment schedule and from
amounts established by the licensees' Notes. We are providing all C block licensees with an array of alternative
payment options, designed to accommodate licensees' various needs. These options were developed and are now
being modified in an effort to balance complex and competing interests, with the recognition that it is impossible
to devise alternatives that satisfy every entity with an interest in this proceeding. The record before us does not
provide a sufficient basis for creating additional payment choices; indeed, there is opposition to our doing so.
Moreover, as explained above and in the Second Report and Order, the Commission purposefully adopted an
approach that does not significantly alter the amounts paid for individual licenses. Retroactively changing the
payment terms would be unfair to other applicants that might have bid differently under more relaxed payment
terms.
30. Finally, we will not adopt the proposal made only by DiGiPH that the Commission somehow
compensate those licensees that timely made the March 31, 1997, payment and, as a consequence, did not benefit
from a suspension of that payment obligation. Compensating licensees for complying with Commission rules
would establish a precedent we consider inadvisable. Furthermore, if a licensee opts to return all its licenses,
we will refund any installment payments previously submitted for those licenses. If a licensee returns some
licenses and retains others, the licensee will be allowed to apply previously submitted installment payments
toward the prepayment of retained licenses or toward the Suspension Interest for retained licenses which the
licensee does not prepay. For example, if a licensee elects resumption of payments for an MTA, any installment
payments previously submitted for a BTA license within that MTA will be applied toward the Suspension Interest
owed for that license, as described in the Second Report and Order. The treatment of installment payments
with respect to the disaggregation and prepayment options is specified below. Therefore, because installment
payments will either be refunded or credited, we believe additional compensation is unnecessary.
VI. SURRENDER OF LICENSES FOR REAUCTION (AMNESTY)
A. Background
31. In the Second Report and Order, the Commission adopted an amnesty option under which a C
block licensee would be permitted to surrender all of its licenses in exchange for relief from its outstanding debt.
The Commission would waive any applicable default payments, subject to coordination with the Department of
Justice pursuant to applicable federal claims collections standards. Licensees electing this option would not
have their down payments returned; however, neither would they be deemed in default or delinquent in meeting
government debt obligations. In addition, they would be eligible to bid for any and all licenses in the reauction
and would not be restricted in making post-auction acquisitions.
32. Subject to one exception, licensees availing themselves of the amnesty option would be required
to surrender all of their licenses to the Commission. The sole exception to this "all-or-nothing" rule allowed
licensees that met or exceeded the five-year build-out requirement on September 25, 1997, the date of adoption
of the Second Report and Order, to keep licenses for built-out markets. Specifically, a licensee utilizing this
exception would be allowed to retain any built-out BTA, on the condition that it also keep any additional BTAs
in the MTA where the built-out BTA is located and that it pay for all of those retained licenses under the terms
of their original notes.
33. The Commission noted in the Second Report and Order that, although the Bureau had
suspended installment payments on C block licenses on March 31, 1997, some licensees had made installment
payments after the suspension. In addition, some licensees had made their regularly scheduled installment
payments prior to the suspension. The Commission directed the Bureau to refund any installment payments
made (whether due on or before March 31, 1997) on any license surrendered under the amnesty option and
announced that it would forgive payment of any due, but unpaid, installment payments for any surrendered
license. Licensees retaining licenses under the build-out exception were to pay over eight equal payments
(beginning with the payment due on March 31, 1998) all Suspension Interest applicable to the retained licenses.
All installment payments previously made by the licensee on any of its licenses would be applied to reduce the
Suspension Interest applicable to the retained licenses, and any amounts remaining would be refunded.
B. Discussion
34. In keeping with our decision on reconsideration to allow licensees to make elections on an MTA-by-MTA basis, we modify the amnesty option to permit licensees to select that option for as many of their MTAs
as they choose. Because amnesty no longer requires an "all-or-nothing" choice, we also eliminate as moot the
build-out exception. Our decision is consistent with DiGiPH's recommendation that licensees be permitted "to
return licenses for all BTAs on a per MTA basis, separate and apart from having met the five-year build out
provisions . . . ." The change also satisfies Alpine's request that licensees be entitled to turn in any or all of their
licenses under amnesty.
35. The Commission originally adopted the "all-or-nothing" requirement for the amnesty option in
order to prevent licensees from "cherry-picking" only the most desirable MTAs. The Commission believed that
facilitating a "cherry-picking" scheme would limit the potential for licenses to be aggregated, which would
decrease their value to bidders in the reauction. On reconsideration, we find persuasive DiGiPH's contention
that requiring licensees to keep or surrender entire MTAs, rather than BTAs, will sufficiently limit "cherry-picking." We also agree with DiGiPH's position that applying the amnesty option on an MTA-by-MTA basis
does not carry a risk of "cherry-picking" significantly different from that connected with the original
disaggregation option.
36. Several parties object to the fact that a licensee does not receive any refund of its down payment
under the amnesty option. As the Commission explained in the Second Report and Order, its intent in retaining
the down payment was to ensure that licensees electing the amnesty option and participating in the reauction of
their surrendered licenses do so without the undue advantage of having all of their original funds available to
repurchase the same spectrum they surrendered. The Commission further explained that licensees selecting
amnesty would benefit substantially by avoiding being declared in default and thereby being freed from
assessments of delinquencies and other collection costs associated with default payments. The rationale of the
Second Report and Order continues to be valid. If we were to allow C block licensees to return their licenses,
receive a refund of their down payments, and participate in the reauction, we would undermine the integrity of
the auction process by placing amnesty licensees in virtually the same position they would have occupied had the
initial C block auction never taken place.
37. Nevertheless, we recognize that because all elections now are being applied on an MTA-by-MTA basis, licensees are permitted to return licenses in certain MTAs and retain licenses in other MTAs, as with
the prepayment option under the Second Report and Order. Thus, licensees electing the amnesty option have
the following choice. For licenses in each MTA returned under the amnesty option, the licensee may choose either
to: (1) receive no credit for its down payment(s) but remain eligible to bid in the reauction on all its licenses in
the returned MTA (pure amnesty), or (2) obtain credit for 70 percent of its down payment and forgo for a period
of two years from the start date of the reauction eligibility to reacquire the licenses it surrendered pursuant to this
option through either reauction or any other secondary market transaction (amnesty/prepayment). For purposes
of this two-year eligibility restriction, a licensee includes qualifying members of the licensee's control group and
their affiliates. The 70 percent credit must be applied toward prepayment of the entire principal owed for a
retained MTA with 30 MHz licenses and/or toward prepayment of the entire principal owed for the retained 15
MHz licenses of an MTA that has been disaggregated. Providing an additional choice within the amnesty option
substantially increases the level of flexibility available to licensees and enables them to formulate new business
plans that may be more attractive to lenders and investors. It also reflects a suggestion made by Alpine that
licensees not participating in the C block reauction lose a substantially smaller portion of their down payment
than that lost by licensees that do participate.
VII. PREPAYMENT
A. Background
38. In the Second Report and Order, the Commission offered C block licensees the option to prepay
the outstanding principal debt obligations for any licenses, on an MTA basis, that they elected to retain, subject
to the restriction described below. The remaining licenses were required to be surrendered to the Commission
for reauction. In exchange, the Commission would forgive the debt on the surrendered licenses, and any
associated payments owed. A licensee electing this option would make its prepayment by using 70 percent of
the total of all down payments made on the licenses it surrendered to the Commission, plus 100 percent of any
installment payments previously paid for all licenses (collectively, "Available Down Payments"), plus any "new
money" it was able to raise. The remaining portion of the down payment applicable to the surrendered licenses
would not be refunded or credited but simply would be retained by the Commission. Licensees would be
prohibited from bidding on their returned spectrum in the reauction or from reacquiring it in the secondary market
for two years from the start of the reauction. Licensees could, however, bid on spectrum or licenses surrendered
by other licensees, provided such licensees were not affiliates.
39. The requirement that a licensee had to prepay all its BTA licenses within those MTAs that it
selected for prepayment prevented "cherry-picking" because licensees could not prepay only the most desirable
BTA licenses within a given MTA and then surrender the rest. The one exception to this rule was that any
licensee lacking sufficient funds to prepay every BTA license within a chosen MTA would be permitted to prepay
only those BTA licenses within that MTA that it could afford. The licenses for the remaining BTAs within that
MTA which the licensee could not afford to prepay would be surrendered to the Commission.
B. Discussion
40. By providing a license free and clear of debt and payment conditions, prepayment makes it easier
for licensees to raise the additional capital necessary to build out their systems and deploy new services. Thus,
consumers benefit by receiving service sooner. Prepayment also removes the Commission from the role of lender,
which sometimes may conflict with its responsibilities as a regulator. In addition, prepayment benefits the
public because it assures taxpayers of full payment of licenses. Indeed, we have implicitly expressed our
preference for prepayment by eliminating installment payments as a means of financing small business
participation for the immediate future.
41. Under our modified approach, the prepayment option remains essentially the same as set forth
in the Second Report and Order. For any 30 MHz licenses that are returned to the Commission, the licensee may
continue to apply 70 percent of the down payment made on those licenses toward the prepayment of the entire
outstanding principal owed in retained MTAs. The licensee may pool any down payment amounts that have been
designated for prepayment, plus installment payments previously paid on any returned licenses. We will refer
to this pool of credit as a licensee's "Prepayment Credit." This Prepayment Credit may be used to prepay any
retained MTAs with 30 MHz licenses. As will be discussed in more detail below, it also may be used to prepay
the retained 15 MHz licenses of any MTAs that have been disaggregated.
42. As under the Second Report and Order, any "new money" that is used to make prepayment must
be submitted on or before the election date. Unlike under the Second Report and Order, affiliated licensees
will be allowed to combine their Prepayment Credits. However, any affiliated licensees that choose to pool their
Prepayment Credits will be considered one licensee for purposes of making elections. Therefore, the elections
made by those affiliates must be made in concert and must be made on an MTA-by-MTA basis, as is required
of individual licensees. Credit pooling does not require the participation of all of a licensee's affiliates. Any
affiliate that chooses not to pool its credit along with its other affiliates will be considered an individual licensee
for purposes of making elections. We believe on reconsideration that allowing this flexibility is consistent with
the fact that, for purposes of the reauction, we consider a licensee and its affiliates to be the same entity. It also
will prevent licensees from being disadvantaged if, without such a rule, they would have been precluded from
electing prepayment by virtue of the fact that they transferred BTA licenses to affiliates.
43. In response to a request from DiGiPH, we make one important clarification. DiGiPH argues
that, because affordability is a concept subject to differing interpretations, the Commission should further define
its requirement that a licensee must prepay all of those BTA licenses within the MTA "that it can afford." We
clarify that, for purposes of this exception, a licensee can "afford" to prepay all of its BTA licenses within that
MTA if it can prepay all BTA licenses using only its Prepayment Credit. If this amount is not enough to prepay
all its BTA licenses within an MTA, the licensee must prepay as many BTA licenses in the MTA as this amount
will allow and must surrender for reauction the remaining BTA licenses that it cannot afford to prepay. Only
under these circumstances may a licensee choose, within the given MTA, which BTA licenses to prepay and
which to surrender. Once a licensee adds any "new money" at all to make prepayment, the affordability exception
does not apply, and the licensee must add sufficient "new money" that, when added to its Prepayment Credit, is
adequate to prepay all its BTA licenses within its chosen MTAs. A licensee claiming the affordability exception
may choose only one MTA in which it will apply, and it must prepay all its BTA licenses within all other MTAs
selected for prepayment. The Commission will not refund any unspent portion of the Prepayment Credit. We
believe retaining any unspent portion of the Prepayment Credit is a reasonable price for relieving the requirement
that all BTA licenses in all MTAs be prepaid. The affordability exception also will apply to disaggregated MTAs
that the licensee wishes to prepay.
44. This clarification provides an objective means for licensees to implement the affordability
exception. It eliminates any doubt or confusion regarding the scope of the term "afford," and it is an easy, bright-line test to administer. In addition, we believe the restrictions we impose on the affordability exception minimize
a licensee's ability to "cherry-pick" among BTAs. Therefore, we reject Omnipoint's request that the Commission
eliminate the affordability exception, or in the alternative, grant all licensees unlimited flexibility under all options
to select which BTA licenses to retain and which to surrender.
45. We reject arguments claiming that the prepayment option should be revised or eliminated
because it benefits only certain licensees. Each of the payment relief options presented to C block licensees
is designed to strike a fair balance of competing interests, with benefits and obligations appropriate to varying
circumstances. Although these options are intended to provide distinct choices for licensees, they adhere to a
consistent set of principles. Moreover, the available choices complement each other to provide a range of
alternatives to the various C block licensees experiencing financial difficulties. Because it is an important
component in this package of options and because we continue to believe it is sound as a matter of policy, we
decline to eliminate the prepayment option. A menu of options is provided because no single solution would be
appropriate for every situation; therefore, eliminating any one option would prejudice those licensees for which
it may be best suited.
46. We note that we received numerous requests to allow licensees to use their entire down payment
under the prepayment option. We will maintain our rule that licensees electing the prepayment option will
receive no refund or credit for 30 percent of the down payment made on 30 MHz licenses they surrender to the
Commission. We believe that retention of this portion of the down payment is necessary to preserve the integrity
of the auction process. Furthermore, to return the entire down payment would undermine the purpose of the
down payment -- to help ensure performance on a licensee's debt obligation. We disagree with parties that
characterize retention of a portion of the down payment as punitive, a penalty, or a forfeiture. We view
30 percent of the down payment as the fair and reasonable price for receiving the benefits of this option. We
also note that AirGate correctly characterizes the prepayment option as a method of providing licensees with more
flexibility in using their down payments than is permitted under current rules.
47. We disagree with NextWave, Cellexis, and other parties that the Commission should account
for the net present value of forgoing installment payments, or otherwise discount the principal amount due
under the installment payment plan. As Sprint points out, the Commission has considered this argument
extensively and properly rejected it. In the Second Report and Order, the Commission stated that a licensee
should be required to pay the face value of its auction bid. Accounting for the net present value of forgoing
installment payments would rewrite the auction results because it would have the effect of changing the amounts
bid for licenses. Therefore, to do so would be unfair to those bidders that withdrew from the auction under the
assumption that the winning bid amounts represented the prices that would be paid for the licenses. Because
we continue to support the policy that auction bids should be paid at their face value, we will not discount the
principal due. Although the Commission provides favorable terms for financing the bid price, the cost of an
installment payment plan is the interest that accrues over time. The benefit to a licensee for early pay-off of its
financial obligations is the savings in the amount of interest that otherwise would be owed. We believe this
trade-off provides a further reason for not discounting the principal.
48. We decline to provide further flexibility under the prepayment option. Cellexis requests that
the Commission grant the five-year build-out exception provided under the amnesty option to licensees choosing
the prepayment option. A build-out exception is not needed because, under our modified approach, licensees
are permitted to retain any MTAs they wish, whether built-out or not. Regardless, even under the approach
adopted in the Second Report and Order, a build-out exception was unnecessary because licensees had the
discretion to choose which MTAs to prepay and which to surrender, as opposed to the "all-or-nothing" approach
under the original amnesty option. In addition, we decline MFRI's request to allow a licensee that holds both
C and F block licenses to use its C block down payment to purchase for cash its F block licenses. We do not
believe such flexibility is warranted because the reduction of debt associated with prepayment will help those
licensees address their capital needs in servicing their F block debt. Finally, Urban Communicators argues that
the requirement that prepaying licensees must purchase all BTA licenses held within an MTA is unfair to
licensees that have licenses in only one MTA. We disagree. This restriction is essential to prevent "cherry-picking," and a licensee that cannot avail itself of this option can either choose another option or limit its
purchases under the affordability exception, if applicable.
VIII. DISAGGREGATION OF SPECTRUM FOR REAUCTION
A. Background
49. In the Second Report and Order, the Commission offered C block licensees the option to
disaggregate a portion of their spectrum and return it to the Commission for reauction. Licensees electing the
disaggregation option would return one-half (i.e., 15 MHz of 30 MHz) of their spectrum from each of their BTA
licenses within the MTAs in which they chose to disaggregate spectrum. In other words, licensees would not
be required to disaggregate spectrum for all of the licenses they hold, but they would have to disaggregate
spectrum for all of the licenses they hold in a given MTA if they disaggregated spectrum for one license in that
MTA. The returned spectrum would have to be at 1895 -1902.5 MHz paired with 1975 - 1982.5 MHz, which
is spectrum contiguous to the F block.
50. In exchange, the Commission would reduce by 50 percent the amount of debt that was owed on
a 30 MHz license before it was disaggregated. Fifty percent of the down payment made on the 30 MHz license
would be considered the down payment for the retained 15 MHz of spectrum, but the Commission would not
provide a refund or credit for the remaining 50 percent of the down payment. Licensees were required to repay
over eight equal payments (beginning with the payment due on March 31, 1998) all Suspension Interest, adjusted
to reflect the reduction in debt obligation. Any installment payments that were paid prior to the suspension
would be credited in full against those amounts. Licensees were prohibited from bidding on their returned
spectrum in the reauction or from reacquiring it in the secondary market for two years from the start of the
reauction. Licensees could, however, bid on spectrum or licenses surrendered by other licensees, provided such
licensees were not affiliates.
B. Discussion
51. As provided under the Second Report and Order, when a licensee disaggregates an MTA, it will
receive full credit for the portion of the down payment applicable to the spectrum retained from a license (i.e.,
50 percent of the down payment made on the original 30 MHz license). However, on reconsideration, we modify
our decision that licensees electing the disaggregation option receive no refund or credit for the portion of the
down payment applicable to the returned spectrum. For each disaggregated license for which the licensee elects
to resume installment payments, rather than prepay, we will provide a credit of 40 percent of the down payment
applicable to the 15 MHz of spectrum that is returned to the Commission. The 40 percent credit may only be
used to reduce the amount owed on the 15 MHz of spectrum retained from the same BTA license that generated
the credit. The credit, at the licensee's option, may be applied either to Suspension Interest and/or to reduce the
principal outstanding. Any installment payments previously submitted for a disaggregated license for which
the licensee elects to resume installment payments will be credited as described in the Second Report and Order
(i.e., toward Suspension Interest).
52. We derived the 40 percent credit because when it is combined with the 100 percent credit
associated with the retained spectrum, the licensee will receive a credit of 70 percent of the total down payment
for the original 30 MHz license. We have decided to allow this additional credit because we are persuaded by
the argument of several parties that the credit permitted under the disaggregation option should be consistent with
the 70 percent credit permitted under the prepayment option. We believe the disparity that existed under the
Second Report and Order was unfair to licensees that were precluded from electing prepayment. Furthermore,
allowing this additional credit will advance the purposes of the disaggregation option. Disaggregation benefits
both licensees and consumers because it provides a means for licensees to remain in a market area at a
significantly reduced cost. By having their outstanding debt decreased by 50 percent, licensees improve their
ability to finance their retained spectrum and build out their networks. In addition, disaggregation is pro-competitive because it provides a means for other competitors to enter a market area. It also gives unsuccessful
bidders an opportunity to rebid on spectrum in market areas in which they were initially outbid. We believe the
additional 40 percent credit will promote these benefits of disaggregation and will help licensees that have
expressed an interest in disaggregation to take advantage of this option and continue their plans to provide service
in their license areas.
53. We believe a 40 percent credit is warranted when a licensee resumes installment payments on
a disaggregated MTA because the licensee remains in the MTA and continues building out its network in order
to serve those consumers. We will not provide such a 40 percent credit to licensees that resume installment
payments on a license in a different MTA. In contrast to a licensee that uses the 40 percent credit to resume
installments on the retained portion of the disaggregated license, a licensee that seeks to apply a 40 percent credit
from down payments made on licenses returned under an amnesty election would have, under those
circumstances, abandoned service to the entire licensed area affected by that election. We believe that licensees
that surrender licenses should not receive a credit for abandoning those markets unless they use the credit to
prepay retained licenses.
54. We also revise the approach adopted in the Second Report and Order to provide for a
combination of disaggregation and prepayment. As we have discussed, there are many advantages to both
prepayment and disaggregation, and we believe a combination of the two should be encouraged because it offers
the benefits of both options. For example, the licensee continues to build out its network in the market area, the
Commission is relieved from its position of lender, and competing entities have the opportunity to bid on the
returned spectrum. Therefore, if a licensee disaggregates an MTA and prepays the outstanding principal owed
on the retained portion of the MTA, we will provide the licensee with a higher percentage of credit as an incentive
to choose both disaggregation and prepayment. Instead of a 40 percent credit, a licensee that elects both
disaggregation and prepayment will receive credit for 70 percent of the down payment applicable to the returned
spectrum. This 70 percent credit will be added to the licensee's Prepayment Credit which, as explained above,
may be used to prepay any retained MTAs with 30 MHz licenses and/or the retained portions of any MTAs that
have been disaggregated. Allowing this 70 percent credit is consistent with our policy of providing a 70 percent
credit for 30 MHz licenses that are returned to the Commission. In both cases, the credit is 70 percent of the
down payment associated with the amount of spectrum that is returned. In addition, any installment payments
previously submitted for the licenses in an MTA that is both disaggregated and prepaid will be added to the
licensee's Prepayment Credit.
55. If a licensee elects both disaggregation and prepayment for an MTA, the licensee must prepay
the principal owed on the 15 MHz of spectrum retained from each BTA license in the MTA. However, if a
licensee's Prepayment Credit is insufficient to make full prepayment on the entire MTA, then the affordability
exception will apply. Thus, the licensee will be required to prepay only what it can afford and it must return the
rest of the spectrum to the Commission for reauction. As with prepayment of full 30 MHz licenses, the exception
will not apply if any "new money" is added to make prepayment, and the exception may be applied to only one
MTA.
56. We received numerous requests to allow licensees to receive credit for their entire down payment
under the disaggregation option. We consider it inadvisable to provide full credit because we believe that to
do so would undermine the integrity of the auction process. As the Commission concluded in the Second
Report and Order, allowing licensees to use their entire down payment would be unfair to those C block licensees
electing to continue under the existing installment payment plan and to bidders that were unsuccessful in the
auction. We note that we already provide a substantial credit, and we believe that providing any further credit
would not be sound public policy. As Fidelity Capital observes, if a licensee "believes the Commission is not
providing an attractive disaggregation policy, then it is free to disaggregate its spectrum privately to another
qualifying entity."
57. Because numerous benefits are conferred under the disaggregation option, we disagree with
NextWave, ClearComm, and other parties that not providing a refund or credit for all of the down payment
constitutes a penalty or forfeiture. Under disaggregation, the Commission forgives up to half of a licensee's
outstanding debt, an action that will facilitate investment and growth by making more funds available to licensees
for build-out. In addition, the Commission provides low-cost, long-term financing for the retained spectrum.
Furthermore, the Commission renders a valuable service by providing an efficient and cost-effective mechanism
for transferring spectrum that licensees otherwise might have been forced to resell in the secondary market at
great risk. In exchange, the Commission receives the disaggregated spectrum and retains a portion of the down
payment applicable to that spectrum. Therefore, retention of part of the down payment is not a penalty; rather,
it is the fair and reasonable price for receiving the benefits of disaggregation.
58. We are not persuaded that we should add even greater flexibility to the disaggregation option.
We decline to adopt MFRI's suggestion that we allow C block licensees to retain the 15 MHz of spectrum
adjacent to the F block if they also hold the F block license for the same BTA. Allowing certain C block
licensees to disaggregate a different portion of spectrum would create a patchwork pattern of spectrum blocks
in the reauction and would limit the opportunity for F block licensees to aggregate larger spectrum blocks by
bidding on contiguous spectrum in the reauction. To promote consistency and simplicity in the reauction, we also
reject McBride's request that we allow licensees the choice to disaggregate 10, 15, or 20 MHz of spectrum.
Allowing licensees to disaggregate different pieces of spectrum would create inefficiency in the market and would
limit the potential for aggregation, thereby decreasing the value of spectrum in the reauction and delaying service
to the public. Finally, we disagree with Alpine and Urban Communicators that disaggregation should be
permitted on a BTA-by-BTA basis, rather than on an MTA-by-MTA basis. As AirGate notes, disaggregation
on an MTA-by-MTA basis will promote participation in the reauction because licensees are prohibited from
selectively retaining 30 MHz of spectrum in only the most desirable BTAs.
59. NextWave and Cellexis argue that the build-out exception permitted under the amnesty option
should be extended to licensees selecting the disaggregation option. Under our modified approach, a build-out
exception is unnecessary because licensees have the flexibility to determine which MTAs to retain and which to
surrender. Nonetheless, as stated in the Second Report and Order, a build-out exception was never needed under
the disaggregation option because, unlike the original amnesty option, the disaggregation option was never an
"all-or-nothing" proposition. Under the original amnesty option, a licensee was required to surrender all
licenses except for those in MTAs in which it satisfied the build-out requirement. By comparison, disaggregation
was permitted on an MTA-by-MTA basis, and so licensees were never compelled to disaggregate spectrum in
all their MTAs.
60. Finally, we affirm the statement in the Second Report and Order that upon acceptance of the
election notice, the disaggregated spectrum will be deemed returned to the Commission. Further, after
disaggregation, notwithstanding the fact that a disaggregating licensee will continue to hold in its possession a
30 MHz license, that license will no longer authorize use of the 15 MHz of spectrum that is surrendered to the
Commission but will continue to be valid with respect to the 15 MHz of spectrum that is retained.
IX. ELECTION PROCEDURES
A. Background
61. In the Second Report and Order, the Commission established January 15, 1998, as the deadline
for C block licensees to elect to continue under the existing installment payment plan or to elect one of the three
alternative options. The Commission also required, inter alia, C block licensees whose elections would
necessitate ongoing payments to execute any necessary financing documents pursuant to appropriate requirements
and time frames established by the Bureau. The Commission specified procedures to be followed by licensees
electing to continue under their existing notes or electing disaggregation, amnesty, or prepayment.
62. On January 7, 1998, we changed the election date to February 26, 1998, in order to allow
licensees to submit their elections after final disposition of arguments raised on reconsideration. On February
24, 1998, we issued an order changing the election date to 60 days after publication of this Order on
Reconsideration in the Federal Register.
B. Discussion
63. Moving the election date was an appropriate action given the large number of petitions for
reconsideration filed in this proceeding. The revised deadline has provided sufficient time for us to respond to
arguments raised on reconsideration so that licensees can be assured of regulatory certainty before making their
elections. The postponement satisfies the requests of several parties that the date be delayed. We deny,
however, other requests for a still longer postponement. Licensees already have had several months in which
to consider the options under the Second Report and Order, and we believe that 60 days after publication in the
Federal Register will provide sufficient time for any reevaluation that may be necessary in light of the
modifications we make in this Order.
64. We disagree with Omnipoint that NextWave should be required to make its election in advance
of other C block licensees. Omnipoint claims that NextWave is so dominant in the market that its election
decision will have a dramatic impact on the relative value of choices made by the other licensees. Omnipoint
argues that, for example, other licensees might be reluctant to surrender spectrum if they knew NextWave was
keeping its spectrum because reauction opportunities would be severely limited without the return of any
NextWave licenses. We agree with NextWave that all C block licensees should be treated equally, and we will
not discriminate against one licensee in order to grant others a competitive advantage.
65. In the Second Report and Order, the Commission inadvertently omitted reference to the
requirement that F block licensees execute fully and deliver timely all necessary financing documents.
Consequently, we now clarify that F block licensees, as well as C block licensees, must execute and deliver all
necessary financing documents pursuant to appropriate requirements and time frames as will be established by
the Bureau in a forthcoming public notice on procedures. We modify the Second Report and Order to require
both C and F block licensees that fail to execute fully and deliver timely to the Commission any required
financing documents to pay on the payment resumption date all unpaid simple interest accruing from the date of
license grant through the payment resumption date. The Bureau's forthcoming public notice also will set forth
updated election procedures for C block licensees, reflecting our modifications to the Second Report and Order.
X. REAUCTION
A. Timing
66. On January 7, 1998, we announced that the C block reauction would begin on September 29,
1998. In light of the postponement of both the election date and the payment resumption date, as discussed
above, it will be necessary to establish a new reauction date. We delegate to the Bureau the authority to establish
the reauction date. We instruct the Bureau to issue a public notice announcing the new date at least three months
in advance of the start of the reauction.
67. CPCSI, a winning bidder for nine licenses in the C block auction whose license grants were
subject to resolution of an Application for Review pending at the time of the release of the Second Report and
Order, asks the Commission not to begin the reauction until final action on its Application for Review or, in the
event no such action occurs, until the Pocket and GWI bankruptcy proceedings conclude. Because the
Commission granted CPCSI's Application for Review on December 24, 1997, CPCSI's request is moot and
there is no need to address the merits of CPCSI's request.
B. Eligibility
1. Background
68. The Second Report and Order specified that all entrepreneurs, all entities that had been eligible
for and had participated in the original C block auction, and all current C block licensees would be eligible to bid
in the reauction. The Commission, however, created an exception for incumbent licensees: for a period of two
years from the start date of the reauction, C block licensees (defined as qualifying members of the licensee's
control group, and their affiliates) that opted for the disaggregation or prepayment options would be prohibited
from reacquiring, either through the reauction or through any secondary market transaction, any spectrum or
licenses that they surrendered to the Commission under those options. Such licensees, however, would be
permitted to bid on spectrum or licenses surrendered by other licensees, provided that such licensees were not
affiliates. Licensees electing the amnesty option would be eligible to bid for any and all licenses at the
reauction, with no restrictions on post-auction acquisitions.
2. Discussion
69. The only reauction eligibility issues set forth in the Second Report and Order ripe for
reconsideration in this phase of the proceeding are those related directly to whether and how a licensee's election
of a particular payment option should affect its eligibility to participate in the reauction of, or reacquire an
ownership interest in, surrendered spectrum. We defer to other phases of WT Docket No. 97-82 additional
eligibility issues, including the qualifications of entities that have defaulted on payments to participate in the
reauction and the use of a "controlling interest" approach rather than "control group"structures to determine financial size in the C block, as well as in all auctionable services. We note that, in its
comments filed in response to the Further Notice, Nextel Communications, Inc. challenges the Commission's
ruling in the Second Report and Order that participation in the C block reauction is limited to qualified
entrepreneurs. In their petitions for reconsideration, Cellexis and RFW respond to Nextel's arguments and urge
the Commission not to reconsider its decision. We address Nextel's challenge here, notwithstanding the fact
that Nextel's request was not filed as a petition for reconsideration of the Second Report and Order. We
conclude that Nextel has not provided a convincing rationale for deviating from the public interest goals
articulated by the Commission in the Second Report and Order. Consequently, we affirm the Commission's
earlier ruling to limit eligibility for participation in the reauction to applicants meeting the current definition of
"entrepreneur."
70. On reconsideration, we make a change to the eligibility requirements, which already has been
discussed above, and also a clarification. As we stated previously, a licensee that elects the amnesty option for
an MTA and opts to receive partial credit for down payments on its returned licenses in that MTA will not be
eligible to reacquire those licenses through either reauction or any secondary market transaction for a period of
two years from the start date of the reauction. This restriction also applies to the licensee's affiliates. Likewise,
if a licensee disaggregates an MTA, neither it nor its affiliates may bid on the returned spectrum in the reauction
or reacquire it through a secondary market transaction for two years after the start date of the reauction.
Licensees that return licenses under the amnesty option or spectrum under the disaggregation option are not
precluded from bidding in the reauction on licenses or spectrum returned by other non-affiliated licensees (or from
later reacquiring those licenses or spectrum in post-auction transactions). We clarify that the term "affiliate" is
defined by our competitive bidding rules in the Part 1 Third Report and Order. 71. Several parties believe that we should revise our bidding eligibility requirements. Sprint, for
example, agrees with the Commission's decision to exclude C block licensees that choose disaggregation or
prepayment from bidding on their surrendered spectrum at reauction, but contends that the Commission
undermines the integrity of the auction process by not similarly limiting the ability of licensees that select the
amnesty option. Sprint believes that the lack of such a restriction will unjustly enrich licensees that select the
amnesty option and then bid for the same spectrum at a likely discount. NextWave, on the other hand, claims
it is unreasonably discriminatory to preclude entities choosing disaggregation or prepayment from reacquiring
their surrendered spectrum for two years while allowing entities choosing the amnesty option to reacquire their
spectrum immediately either by reauction or through secondary markets.
72. We believe our modified approach addresses both these arguments. In response to NextWave,
we note that licensees electing disaggregation and/or prepayment for one MTA now can choose to return licenses
in other MTAs and bid on those licenses in the reauction. However, in response to Sprint, we point out that
licensees electing amnesty for an MTA must forgo their entire down payment if they wish to bid on their returned
licenses for that MTA. We believe that this cost sufficiently mitigates any concern of unjust enrichment.
XI. MISCELLANEOUS MATTERS
A. Cross Defaults
73. The Second Report and Order provided that if a licensee defaulted on a C block license, the
Commission would not pursue cross default remedies with regard to the licensee's other licenses in the C or F
blocks. In other words, if a licensee defaulted on a given C block license but was meeting its payment
obligations on its other C or F block licenses, the Commission would not declare the licensee to be in default with
respect to those other C or F block licenses. We disagree with CIRI that, by not imposing cross default
remedies, we encourage auction participants to bid speculatively and then "cherry-pick" among the licenses they
ultimately decide to keep by simply defaulting on the ones they no longer desire. As explained earlier, we have
implemented numerous procedures to safeguard against "cherry-picking." Moreover, we believe that by not
imposing cross default remedies, we encourage regional financing. Even if a licensee's holdings in one region
have proven unattractive to the financial market, the same licensee's holdings in other markets may be financially
sound. Therefore, we will not depart from the decision in the Second Report and Order. We note that licensees
that ultimately default will continue to be subject to debt collection procedures.
B. No Extension of C Block Relief to Other Licensees
74. We reject various requests to grant F block licensees the same relief provided to C block
licensees. Cellular Holding contends that C and F block licensees should be treated similarly because: (1) both
are licensed to provide broadband PCS; (2) they were granted their licenses within 7.5 months of one another;
(3) Section 24.709 of the Commission's rules governs bidder eligibility for both blocks; (4) their market
boundaries are identical; (5) they will have nearly the same amount of spectrum if C block licensees choose
disaggregation; and (6) they both compete with larger, more experienced competitors that received a head-start.
Cellular Holding, however, ignores the fact that C and F block licensees are not similarly situated with respect
to the most relevant factor -- the need for financial relief.
75. After careful review, the Commission determined in the Second Report and Order that "the
nature and extent of any financing difficulties faced by the C block licensees appear to be different from any such
problems facing entrepreneurs in the F block." C block prices were higher, on average, than F block prices.
We disagree with several parties that argue that the Commission's explanation in the Second Report and Order
fails to justify disparate treatment. The difficulties in financing the unexpectedly high prices bid in the C block
auctions is a sufficiently distinguishing basis for limiting relief to C block licensees. As further justification, we
agree with AmeriCall that the C block situation was the result of a unique set of mostly unpredictable events,
including litigation and resulting licensing delays and the lack of a simultaneous non-entrepreneur auction that
could have been used to ease price pressures.
76. The need for C block relief was due to exceptional and urgent circumstances, and because it is
essential to maintain the integrity of the auction process, only the most exigent situation would cause us to offer
such relief. Even in addressing the C block financing situation, the Commission provided options that offered
only limited relief so as to be fair to bidders that withdrew from the auction. We therefore are not persuaded by
Central Oregon's claim that F block licensees should be granted relief because A, B, and C block licensees have
a competitive advantage given their earlier licensing date and their larger amounts of spectrum. We also reject
Omnipoint's argument that C block options should be available to entrepreneurs with D, E, and F block licenses
because C block relief will change the relative values of those licenses. These arguments do not present
sufficiently compelling reasons to apply the "extraordinary procedures" we adopted for C block licensees to D,
E, and F block licensees. In addition, CONXUS, the only party to address this issue, argues that narrowband
PCS entities should receive relief comparable to that afforded C block licensees because they compete in the same
consumer and financial markets and face similar circumstances. The record in this reconsideration proceeding
is insufficient to adopt global changes affecting narrowband PCS entities, but we note that payment matters for
these entities are currently being examined in another proceeding before the Commission.
C. Issues Addressed in Other Proceedings or Requiring Action by Congress
77. A number of parties make requests involving issues either that will be, or have been, addressed
in other proceedings or that require action by Congress. For example, several petitioners urge the Commission
to reduce the interest rate for C block installment payments. The Bureau will address this issue in a
forthcoming order. With respect to Northern Michigan's request that we allow commercial lenders to acquire a
security interest in licenses, we note that we previously resolved the issue in another proceeding.
78. TAP encourages the Commission to seek Congressional authority to award tax certificates to
entities that provide investment capital to C block licensees. Section 309(j)(4)(D) of the Communications Act
mandates that, in seeking to ensure that designated entities are "given the opportunity to participate in the
provision of spectrum-based services," the Commission shall "consider the use of tax certificates." By allowing
a tax deferral of the gain realized on an investment, tax certificates provide a significant means of enhancing the
value of an investment in an enterprise, and we believe that a tax certificate program for spectrum-based services
would be as beneficial to the wireless industry as the Commission's tax certificate programs were for the
broadcast and cable industries. However, in view of Congress' repeal in 1995 of Section 1071 of the IRS
Code, which granted the Commission authority to use tax certificates to promote Commission policies, we
believe that legislative action would be necessary before we could provide such tax relief. Accordingly, we urge
Congress to review the positive impact of the Commission's previous tax certificate programs and to grant us the
authority to establish a similar program for wireless enterprises, which we believe would promote competition
in the telecommunications industry by encouraging investment in new services.
XII. PROCEDURAL MATTERS AND ORDERING CLAUSES
A. Supplemental Final Regulatory Flexibility Analysis
79. The Supplemental Final Regulatory Flexibility Analysis, pursuant to the Regulatory Flexibility
Act, 5 U.S.C. 604, is attached at Appendix C.
B. Paperwork Reduction Act Analysis
80. This Order contains a modified information collection that was submitted to the Office of
Management and Budget requesting emergency clearance under the Paperwork Reduction Act of 1995.
C. Ordering Clauses
81. Accordingly, IT IS ORDERED that, pursuant to the authority granted in Sections 4(i), 303(r),
and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j), the
petitions for reconsideration filed in response to the Second Report and Order are GRANTED IN PART and
DENIED IN PART, as provided herein.
82. IT IS FURTHER ORDERED that, pursuant to the authority granted in Sections 4(i), 303(r),
and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j), the
modifications to the Commission's rules, as described herein and in Appendix B, ARE HEREBY ADOPTED.
These modifications shall become effective 60 days after publication of this Order on Reconsideration of the
Second Report and Order in the Federal Register.
83. IT IS FURTHER ORDERED that, pursuant to 47 U.S.C. 155(c) and 47 C.F.R. 0.331, the
Chief of the Wireless Telecommunications Bureau IS GRANTED DELEGATED AUTHORITY to prescribe and
set forth procedures for the implementation of the provisions adopted herein.
84. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference
Operations Division, SHALL SEND a copy of this Order on Reconsideration of the Second Report and Order,
including the Supplemental Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary APPENDIX A
Petitions for Reconsideration
1. Airtel Communications, Inc. ("Airtel")
2. Alpine PCS, Inc. ("Alpine")
3. AmeriCall International, L.L.C. ("AmeriCall")
4. Carolina PCS I Limited Partnership ("CPCSI")
5. Cellexis International, Inc. ("Cellexis")
6. Cellnet ("Cellnet")
7. Cellular Holding, Inc. ("Cellular Holding")
8. Central Oregon Cellular, Inc. ("Central Oregon")
9. Christensen Engineering & Surveying ("Christensen")
10. ClearComm, L.P. ("ClearComm")
11. CONXUS Communications, Inc. ("CONXUS")
12. Cook Inlet Region, Inc. ("CIRI")
13. CVI Wireless
14. DiGiPH PCS, Inc. ("DiGiPH")
15. Federal Network
16. Fox Communications
17. General Wireless, Inc. ("GWI")
18. Horizon Personal Communications, Inc. ("Horizon")
19. Hyundai Electronics America ("Hyundai")
20. Koll Telecommunication Services ("Koll")
21. Leifer, Marter Architects ("Leifer, Marter")
22. McBride, Vincent ("McBride")
23. Meretel Communications, L.P. ("Meretel")
24. MFRI Incorporated ("MFRI")
25. NextWave Telecom Inc. ("NextWave")
26. New Wave Inc. ("New Wave")
27. Northern Michigan PCS Consortium L.L.C. and Wireless 2000, Inc. ("Northern Michigan")
28. Omnipoint Corporation ("Omnipoint")
29. One Stop Wireless of America, Inc. ("One Stop Wireless")
30. OnQue Communications, Inc. ("OnQue")
31. Prime Matrix Wireless Communications ("Prime Matrix")
32. RFW PCS Inc. ("RFW")
33. Sprint Corporation ("Sprint")
34. United Calling Network, Inc. ("UCNI")
35. Urban Communicators PCS Limited Partnership ("Urban Communicators")
36. URS Greiner, Inc. ("URS Greiner")
37. Wireless Nation, Inc. ("Wireless Nation")
Oppositions
1. AirGate Wireless, L.L.C. ("AirGate")
2. ALLTEL Communications, Inc. ("ALLTEL")
3. AmeriCall International, L.L.C. ("AmeriCall")
4. Antigone Communications Limited Partnership and PCS Devco, Inc. ("Antigone/Devco")
5. AT&T Wireless Services, Inc. ("AT&T")
6. ClearComm, L.P. ("ClearComm")
7. CONXUS Communications, Inc. ("CONXUS")
8. Duluth PCS, Inc., St. Joseph PCS, Inc., and West Virginia PCS, Inc. ("Duluth PCS, et al.")
9. Fidelity Capital
10. MFRI Incorporated ("MFRI")
11. NextWave Telecom Inc. ("NextWave")
12. Northcoast Communications, L.L.C. ("Northcoast")
13. Omnipoint Corporation ("Omnipoint")
14. Polycell Communications, Inc. ("Polycell")
15. PrimeCo Personal Communications, L.P. ("PrimeCo")
16. Sprint Corporation ("Sprint")
17. Third Kentucky PCS "Third Kentucky")
Replies to Oppositions
1. Alpine PCS, Inc. ("Alpine")
2. Cellexis International, Inc. ("Cellexis")
3. ClearComm, L.P. ("ClearComm")
4. CONXUS Communications, Inc. ("CONXUS")
5. CX Systems Int'l, Inc. ("CX Systems")
6. Eldorado Communications, L.L.C. ("Eldorado")
7. Federal Network
8. Frontier Corporation ("Frontier")
9. Hyundai Electronics America ("Hyundai")
10. MFRI Incorporated ("MFRI")
11. NextWave Telecom Inc. ("NextWave")
12. Omnipoint Corporation ("Omnipoint")
13. RFW PCS Inc. ("RFW")
14. Telecommunications Advocacy Project ("TAP")
15. Third Kentucky Cellular Corp. ("Third Kentucky")
16. Wireless Ventures, Inc. ("Wireless Ventures")
Ex Parte Filings
1. AirGate Wireless, L.L.C. ("AirGate"), February 9, 1998
2. AmeriCall International, L.L.C. ("AmeriCall"), March 12, 1998
3. Christensen Engineering & Surveying ("Christensen"), December 19, 1997
4. ClearComm, L.P. ("ClearComm"), February 23, 1998
5. ClearComm, L.P. ("ClearComm"), March 13, 1998
6. Congressman Gary L. Ackerman, January 15, 1998
7. Congressman Xavier Becerra, February 3, 1998
8. Congresswoman Sue W. Kelly, December 31, 1997
9. Congressman Albert R. Wynn, February 9, 1998
10. CX Systems Int'l, Inc. ("CX Systems"), December 10, 1997
11. Cyber Sites, L.L.C. ("Cyber Sites"), December 1, 1997
12. Datacomm Research Company, February 20, 1998
13. Dorne & Margolin, December 1, 1997
14. Florida Power Corporation ("Florida Power"), December 19, 1997
15. Gilder Technology Group, Inc., February 16, 1998
16. Joint filing by 43 companies, February 20, 1998
17. Kabbara Engineering ("Kabbara"), December 26, 1997
18. LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco"), December 24, 1997
19. Leifer, Marter Architects ("Leifer, Marter"), December 17, 1997
20. Members of the Congressional Hispanic Caucus, February 5, 1998
21. MJA Communications Corp. ("MJA"), December 22, 1997
22. New Wave Inc. ("New Wave"), January 20, 1998
23. New Wave Inc. ("New Wave"), February 17, 1998
24. NextWave Telecom Inc. ("NextWave"), January 21, 1998
25. OPM USA, Inc. ("OPM"), December 23, 1997
26. Praxis Telecom, January 26, 1998
27. Prudential Securities Inc., February 26, 1998
28. R&S PCS, Inc., February 11, 1998
29. RFW PCS Inc. ("RFW"), December 23, 1997
30. Senator Barbara Boxer, February 13, 1998
31. Senators Richard H. Bryan and Harry Reid, January 29, 1998
32. Senator Thomas Daschle, February 11, 1998
33. Senator J. Robert Kerrey, February 12, 1998
34. Specialty Teleconstructors Inc. ("Specialty Teleconstructors"), December 19, 1997
35. Structure Consulting Group ("Structure Consulting"), December 22, 1997
36. Wireless Nation, Inc. ("Wireless Nation"), January 23, 1998
37. Xway, Inc. ("Xway"), December 16, 1997
38. 2001 Personal Communication, Inc., January 8, 1998
APPENDIX B
Revised Rules
Part 1 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:
PART 1 PRACTICE AND PROCEDURE
1. The authority citation for Part 1 continues to read as follows:
Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. 151, 154(i), 154(j), 155, 225, and 303(r), unless otherwise
noted.
2. Section 1.2110 is amended by revising paragraph (f)(4)(ii), (iii), (iv) to read as follows:
1.2110 Designated Entities
* * * * *
(f) * * *
(4) * * *
(i) * * *
(ii) If any licensee fails to make the required payment at the close of the 90-day period set forth in subsection
(i) above, the licensee will automatically be provided with a subsequent 90-day grace period, except that no
subsequent automatic grace period will be provided for payments from C or F block licensees that are not made
within 90 days of the payment resumption date for those licensees, as explained in Amendment of the
Commission's Rules Regarding Installment Payment Financing for Personal Communications Services (PCS)
Licensees, Order on Reconsideration of the Second Report and Order, WT Docket No. 97-82, FCC 98-46 (rel.
Mar. 24, 1998). * * *
(iii) If an eligible entity making installment payments is more than one hundred and eighty (180) days delinquent
in any payment, it shall be in default, except that C and F block licensees shall be in default if their payment due
on the payment resumption date, referenced in subsection (ii) above, is more than ninety (90) days delinquent.
(iv) Any eligible entity that submits an installment payment after the due date but fails to pay any late fee,
interest or principal at the close of the 90-day non-delinquency period and subsequent automatic grace period,
if such a grace period is available, will be declared in default, its license will automatically cancel, and will be
subject to debt collection procedures.
* * * * *
Part 24 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:
PART 24 PERSONAL COMMUNICATIONS SERVICES
3. The authority citation for Part 24 continues to read as follows:
Authority: 47 U.S.C. 154, 301, 302, 303, 309 and 332, unless otherwise noted.
4. Section 24.709 is amended by revising paragraph (b)(9)(i), (ii) (A) - (B) to read as follows:
24.709 Eligibility for licenses for frequency Blocks C and F.
(a) * * *
(b) * * *
(9) Special rule for licensees disaggregating or returning certain spectrum in frequency block C.
(i) In addition to entities qualifying under this section, any entity that was eligible for and participated in the
auctions for frequency block C, which began on December 18, 1995, and July 3, 1996, will be eligible to bid in
a reauction of block C spectrum surrendered pursuant to Amendment of the Commission's Rules Regarding
Installment Payment Financing for Personal Communications Services (PCS) Licensees, Second Report and
Order and Further Notice of Proposed Rule Making, WT Docket No. 97-82, 12 FCC Rcd 16,436 (1997), as
modified by the Order on Reconsideration of the Second Report and Order, WT Docket No. 97-82, FCC 98-46
(rel. Mar. 24, 1998).
(ii) The following restrictions will apply for any reauction of frequency block C spectrum conducted after March
24, 1998:
(A) Applicants that elected to disaggregate and surrender to the Commission 15 MHz of spectrum from any or
all of their frequency block C licenses, as provided in Amendment of the Commission's Rules Regarding
Installment Payment Financing for Personal Communications Services (PCS) Licensees, Second Report and
Order and Further Notice of Proposed Rule Making, WT Docket No. 97-82, 12 FCC Rcd 16,436 (1997), as
modified by the Order on Reconsideration of the Second Report and Order, WT Docket No. 97-82, FCC 98-46
(rel. Mar. 24, 1998), will not be eligible to apply for such disaggregated spectrum until 2 years from the start of
the reauction of that spectrum.
(B) Applicants that surrendered to the Commission any of their frequency block C licenses, as provided in
Amendment of the Commission's Rules Regarding Installment Payment Financing for Personal Communications
Services (PCS) Licensees, Second Report and Order and Further Notice of Proposed Rule Making, WT Docket
No. 97-82, 12 FCC Rcd 16,436 (1997), as modified by the Order on Reconsideration of the Second Report and
Order, WT Docket No. 97-82, FCC 98-46 (rel. Mar. 24, 1998), will not be eligible to apply for the licenses that
they surrendered to the Commission until 2 years from the start of the reauction of those licenses if they elected
to apply a credit of 70% of the down payment they made on those licenses toward the prepayment of licenses they
did not surrender.
(C) * * *
* * * * *
APPENDIX C
Supplemental Final Regulatory Flexibility Analysis
As required by the Regulatory Flexibility Act ("RFA"), an Initial Regulatory Flexibility Analysis
("IRFA") was incorporated in the Order, Memorandum Opinion and Order and Notice of Proposed Rulemaking
("Notice") in WT Docket No. 97-82. The Commission sought written public comment on the proposals in the
Notice, including comment on the IRFA. A Final Regulatory Flexibility Analysis ("FRFA") was incorporated
in the Second Report and Order and Further Notice of Proposed Rule Making ("Second Report and Order").
The Commission received 37 petitions for reconsideration in response to the Second Report and Order. This
FRFA analyzes the modifications adopted in response to those petitions for reconsideration.
A. Need for, and objectives of, this Order.
This Order on Reconsideration of the Second Report and Order ("Order") is designed to assist C block
broadband personal communications services ("PCS") licensees to meet their financial obligations to the
Commission while at the same time helping the Commission meet its goal of ensuring rapid provision of PCS
service to the public. The Order provides a variety of relief mechanisms to assist C block licensees that are
experiencing difficulties in meeting the financial obligations under the installment payment plan. The relief
provided to C block licensees will speed deployment of service to the public by easing lenders' concerns regarding
regulatory uncertainty and by potentially making more capital available for investment and growth. By
facilitating the provision of service to consumers, the Commission advances Congress' objective to promote "the
development and rapid deployment of new technologies, products, and services for the benefit of the public."
B. Summary of significant issues raised by public comments in response to the IRFA.
There were no comments filed in response to the IRFA; however, in this proceeding we have considered
the economic impact on small businesses of the modifications we have adopted. See Section E of this
Supplemental FRFA, infra.
C. Description and estimate of the number of small entities to which rules will apply.
The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of
small entities that will be affected by our rules. The RFA generally defines the term "small entity" as having the
same meaning as the terms "small business," "small organization," and "small governmental jurisdiction." In
addition, the term "small business" has the same meaning as the term "small business concern" under Section 3
of the Small Business Act. Under the Small Business Act, a "small business concern" is one which: (1) is
independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional
criteria established by the Small Business Administration ("SBA").
This Order applies to broadband PCS C and F block licensees. The Commission, with respect to
broadband PCS, defines small entities to mean those having gross revenues of not more than $40 million in each
of the preceding three calendar years. This definition has been approved by the SBA. On May 6, 1996, the
Commission concluded the broadband PCS C block auction. The broadband PCS D, E, and F block auction
closed on Jan. 14, 1997. Ninety bidders (including the C block reauction winners, prior to any defaults by
winning bidders) won 493 C block licenses and 88 bidders won 491 F block licenses. Small businesses placing
high bids in the C and F block auctions were eligible for bidding credits and installment payment plans. For
purposes of our evaluations and conclusion in this FRFA, we assume that all of the 90 C block broadband PCS
licensees and 88 F block broadband PCS licensees, a total of 178 licensees potentially affected by this Order,
are small entities.
D. Description of the projected reporting, recordkeeping, and other compliance requirements.
C block licensees must file notice of their elections with the Wireless Telecommunications Bureau no
later than the election date. The election date will be 60 days after publication of the Order in the Federal
Register. The Order increases the reporting requirements of the Second Report and Order to the extent that
elections now may be made for each Major Trading Area ("MTA"). Formerly, licensees were required to make
the same election for all their licenses.
E. Steps taken to minimize the significant economic impact on small entities, and significant
alternatives considered.
As noted in the FRFA of the Second Report and Order, the Commission analyzed the significant
economic impact on small entities and considered significant alternatives. The modifications adopted on
reconsideration will further reduce the burden on C block licensees, which are small businesses. These
modifications include:
(1) Elections on an MTA-by-MTA basis. Licensees now will have the flexibility to make elections on an MTA-by-MTA basis, and so are not compelled to make the same election for all their licenses. This modification will
afford C block licensees greater flexibility in fashioning a restructuring plan.
(2) Additional flexibility for licensees. The Commission added flexibility to the amnesty option by offering
licensees the choice between receiving a credit for their returned licenses or having the opportunity to bid on their
return licenses in the reauction. The Commission also provided additional flexibility by allowing licensees to
combine disaggregation with prepayment.
(3) Higher percentage of down payment credit. By crediting a higher percentage of the down payment under
disaggregation, the Commission better enables these small businesses to remain in the wireless market. The
Commission provides even more credit to licensees choosing a combination of disaggregation and prepayment
in order to encourage licensees to take advantage of the benefits of both these options.
(4) Thirty-day extension of the non-delinquency period for payments not made on the resumption date. The
Commission's 30-day extension is intended to help licensees that are experiencing last-minute delays in raising
capital by providing them additional time to complete their fund-raising efforts.
(5) Clarification of the Affordability Exception. The Commission's clarification of the affordability exception
provides an objective means for licensees to implement the exception. It eliminates any doubt or confusion
regarding the scope of the term "afford," and it is an easy, bright-line test to administer.
The Commission believes that it is in the public interest to adopt the above modifications in order to
facilitate rapid introduction of service to the public without further regulatory or marketplace delay. The
Commission's decision minimizes the potential significant economic impact on small entities by permitting C
block licensees to choose among a variety of alternative solutions to reduce their debt to the Commission. The
intent of this Order is to alleviate, to some extent, the financial difficulties faced by these small entities by
providing options that: (1) achieve a degree of fairness to all parties, including losing bidders in the C block
auction; (2) continue to promote competition and participation by smaller businesses in providing broadband PCS
service; and (3) avoid solutions that merely prolong uncertainty.
The Commission rejected proposals for a further deferral of the payment resumption deadline because
licensees already have had a sufficient deferral period. In addition, the Commission does not wish to adopt
temporary solutions that might only postpone the difficulties faced by the C block licensees and further prolong
uncertainty. There is no guarantee that an extended deferral period would improve the long term financial outlook
facing many licensees. The Commission also rejected arguments that licensees should receive full credit for down
payments made on licenses or spectrum returned to the Commission for reauction. The Commission already
provides substantial use of a licensee's down payment. Moreover, providing full credit would be unfair to
unsuccessful bidders that withdrew from the C block auction.
F. Report to Congress.
The Commission shall send a copy of the Order, including this Supplemental FRFA, in a report to
Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996. See 5 U.S.C.
801(a)(1)(A). A copy of the Order and this FRFA (or summary thereof) will be published in the Federal
Register. See 5 U.S.C. 604(b). A copy of the Order and this FRFA will also be sent to the Chief Counsel for
Advocacy of the Small Business Administration. Statement of
Commissioner Susan Ness
Concurring in Part, Dissenting in Part
Re: Amendment of the Commission's Rules Regarding Installment Payment Financing for
C block Personal Communications Service (PCS) Licensees, WT Docket No. 97-82
I concur in today's decision to the extent it affirms the Commission's decision of September 25, 1997, and
dissent to the extent it does not. I am pleased that the majority has generally adhered to the framework
established last fall. But I do not support the revised package of options being afforded to C block licensees,
which I believe is an excessive and potentially counterproductive government intervention in the marketplace.
In addition, I am troubled by the majority's willingness to indefinitely delay reauction of returned licenses.
My disagreements with the majority are real, and they are substantial, but they are also respectful. As with
many of the judgments the Commissioners are called upon to make, reasonable people can disagree. So here.
Although I supported the Commission's prior decision, I have welcomed the opportunity to think anew on
these issues. Reconsideration presents an opportunity -- and a duty -- to consider the matter with a fresh eye.
I have used the reconsideration process to test the facts and logic undergirding the Commission's prior
decision, to seek additional information and ideas, and to deliberate with a new group of colleagues who bring
diverse backgrounds and fresh insights to the process.
And yet this process has left unshaken the core convictions that were central to my thinking last September.
Spectrum auctions cannot achieve their full promise as a method of assigning rights to use the public
airwaves if, after the fact, government interposes itself into the marketplace to alter market outcomes and
favor one group of competitors over another group of competitors.
It remains my view that the C block auction, like the other spectrum auctions the Commission has
administered, was run fairly. At the time of the auction, the playing field was level. Everyone believed they
were playing by the same rules. Each bidder was on notice to take our rules into consideration when they bid,
including the installment terms. Every bid, by every bidder, was entirely voluntary.
As prices rose, some bidders dropped out, believing that others were misjudging the market, and banked on
the opportunity to obtain licenses in the event of defaults, license cancellation, and reauction -- the way the
FCC said it would work. Others, judging the market potential differently, stayed in. The FCC owes an equal
duty to all of these bidders. In my view, today's decision breaches that duty.
In September, we departed in a limited fashion from strict adherence to market mechanisms, and the majority
has now moved further down the slippery slope. In the wake of today's decision, we can reasonably anticipate
that these licensees, or those in other spectrum blocks, will seek other accommodations on future occasions.
This is the inevitable result when government too readily intervenes to protect market participants from
failure.
The real damage here is to our role as steward of the public airwaves. Our responsibilities are to facilitate use
of the spectrum to bring competitive services to the public, to be fair to all parties (licensees and disappointed
bidders alike), and to rely on marketplace forces rather than government edict to select winners and losers.
Having placed spectrum in an auction with fair rules known to all parties, we should not intrude on the
marketplace after the auction for the purpose of assisting some parties to remain licensees. The marketplace
is far better suited than we are to determine the capabilities of licensees, and to provide support for those
business plans that make economic sense.
Moreover, financial markets need regulatory certainty and predictability of outcomes. Otherwise the
regulatory risk is too great to warrant investment. Wall Street needs the
C block licensees to get on with business. Our September decision met with some applause, in part because it
contributed certainty to the marketplace and allowed participants, equipment manufacturers, and suppliers of
venture capital to proceed. The measures the majority takes today regretfully foster more uncertainty and
unpredictability.
Specific Concerns
Although the majority has maintained the basic framework of the decision rendered last September, there are
fundamental differences between what the Commission did then and what it is doing now. The new approach
will entail greater governmental intrusion in the marketplace, more disruption of business plans, and more
delays in C block construction and operation.
The options afforded last September were painstakingly tailored to maintain consistency with auction results
and to speed the resumption of normal operation of the market. These options were designed to enable some
licensees to exit their predicaments; others to regroup; and still others to refocus their energies on executing
their business plan. Given the growing competition in the wireless marketplace, I believed it to be important
to enable those C block licensees which were able to do so to "get back to business" as soon as possible. For
that reason, one virtue of the options set forth in our September decision was that they were designed to give
a modest hand to those most in need, not to create incentives for those licensees capable of proceeding under
their original agreements to abandon their business plans.
As noted above, the majority is retaining the basic framework of September's decision, but changing it in
significant ways. Today's decision: (1) increases the ability of licensees to credit deposits that otherwise
would be forfeit; (2) allows some deposits to be applied against suspension interest; (3) permits licensees to
choose among the options on an MTA-by-MTA basis; (4) extends the time when licensees need to either
resume their payments or face cancellation of their licenses; and (5) indefinitely postpones the reauction.
Taken in combination, the new array of options is complex, confusing, and overly intrusive in the
marketplace.
The decision today takes what had been a menu of measured options and turns it into a smorgasbord of hearty
choices. The enriched menu of options adopted today may compel all C block licensees to stop and reassess
their business plans. Each will now feel obligated to consider whether changing its plans would be more
advantageous than proceeding in accordance with the original auction outcome; and many will do so. It is ill-advised and unnecessary to offer new terms that will alter the plans of licensees who were otherwise prepared
to proceed. This has extended the delay in settling the C block, and adds to the uncertainty in the financial
markets. And most important, we are interfering with market correction mechanisms that would ensure that
C block licenses are held by entrepreneurs financially able to provide service to the public.
Use of Down Payments
Of the changes to the plan adopted last September, I am most troubled by those pertaining to the
disaggregation option. Previously, those choosing disaggregation were required to forfeit the down payments
associated with the portion of the spectrum that was being returned; now, they may use a portion of these
funds. But these funds do not belong to a licensee that cannot meet its commitments -- any more than do
those paid for an option to buy land that has lapsed or a downpayment on a car that has been repossessed.
Yet the majority allows these funds to be used to pay down principal on the licenses that are kept or, worse, to
pay suspension interest.
Using deposits that would otherwise be forfeited to pay suspension interest essentially postpones the time
when the licensee's financial ability to construct and operate a service is put to the test. It also is not fair to
the licensees who met their obligations and who must raise the money to cover suspension interest payments.
Delays in Resumption of Payments and Reauction
I am also troubled by yet another extensive delay before the date by which licensees will need to resume
payments on their licenses. Until such payments are made, the market will not know which licensees are
financially viable. The payments already have been suspended for one year. Now, additional time is needed
for licensees to sort out their expanded options. At the same time, the grace period for delayed payments is
being extended. So we prolong the time during which the licenses will be tied up, with no assurance that the
licensees will ultimately be able to finance and construct their systems and provide service to the public.
In addition, I am concerned by the further delay in the timing of the reauction of forfeited licenses. A
reauction is needed to put licenses in the hands of those capable of putting them to productive use. It will
also create long-awaited opportunities for those designated entities that, in the prior auction, consciously and
responsibly chose not to bid more than they could pay. And yet, in today's order, the majority indefinitely
postpones the reauction. Last year, we said it would occur in the third quarter of 1998. Just two months ago,
the new Commission committed to a date of September 29, 1998. Now, the reauction is deferred until further
notice.
Still more delay is inherent in the Commission's inaction on rules for the C block reauction. These rules were
proposed in the same September order that here is under reconsideration and for which the comment period
has ended. Yet even though decisions on some issues in that proceeding could affect the elections from
among the newly expanded options, the majority has declined to settle those issues today.
Competing Objectives
The agency is caught between conflicting concerns. Everyone agrees, at least as a general principle, that it is
vital to maintain the integrity of the auction process. Yet we naturally are drawn to help C block licensees
who are facing hardship. Behind the corporate names printed on the licenses and the petitions for relief stand
real people -- small business owners, entrepreneurs, individual investors, and others, many of them women
and minorities -- facing real problems. I -- like my colleagues -- am drawn to help them.
But it is impossible to fully reconcile a commitment to fair market-driven spectrum assignments with a
willingness to change the rules of the game after it has been played. At some point, one objective must
prevail over the other. In my judgment, where the objectives collide, the integrity of the process must control,
and the desire to help individual players must yield.
If we really believe in assigning spectrum by auctions as authorized by Congress in the Omnibus Budget
Reconciliation Act of 1993, and the "procompetitive, deregulatory" paradigm of the Telecommunications Act
of 1996, we must accept the reality that some licensees will fail in the marketplace, and that their conditional
licenses will need to be canceled and reauctioned, as our rules envisioned. Such outcomes are painful, but
necessary, if the marketplace is to work its magic.
My disagreement with the majority concerns the lengths to which the Commission should go in trying to
prevent such outcomes.
Judges and legislators, lawyers and economists -- all speak to the need to promote and protect competition,
not competitors. In my opinion, today's decision crosses the line to favor specific competitors over others. I
cannot support that result.
Some parties have suggested that the Commission owes a duty to go to extra lengths because the C block
licensees are all small business "designated entities." This argument misses the point that, with or without
post hoc relief, the C block spectrum will remain exclusively for designated entities. What is at issue is a
clash not between the interests of small entities and those of large conglomerates. Rather, the issue is
whether the FCC should favor one group of designated entities over another. I do not believe it should.
The Commission's Role
The Commission's intervention in the post-auction market is neither compelled nor excused by the ongoing
financial obligation of the C block licensees to the U.S. Treasury. The Commission's fundamental role is that
of a licensing agency, not that of a lender. Although the agency's C block rules enabled designated entities to
purchase spectrum rights with installment payments, as Congress specifically contemplated (47 U.S.C.
309(j)(4)(A)), our responsibility after the auction was to issue licenses, which were expressly conditioned
upon the licensees' fulfillment of their financial commitments.
Those who say the Commission functioned as a banker are mistaken. We never performed the banker's role
(which I know well) of reviewing the bidders' balance sheets, their business plans, the wisdom of their
planned bids, and the quality of their management. We never assumed the responsibility of creating
"commercially reasonable alternatives" for whatever difficulties the C block licenses encountered. To the
contrary, we repeatedly declared our
commitment to the efficacy of the market mechanism, and our intention to enforce auction rules.
Conclusion
Today's decision may enable the survival of some C block licensees who might have failed without
government intervention. More likely is the prospect that the significantly sweetened selection of options will
lead directly to more churn in business plans, more deviation from initial auction results, more confusion in
the financial markets, and more delay in construction of facilities. A further cost is the long-term skepticism
in the market that the Commission will revise its rules whenever the pressure is great enough.
It is my view that these rule changes prolong uncertainty, and fail to treat all interested parties equitably.
Accordingly, to the extent the majority goes beyond the terms of last September's order, I respectfully dissent.SEPARATE STATEMENT OF COMMISSIONER MICHAEL POWELL, CONCURRING IN PART
AND DISSENTING IN PART
Re: Amendment of the Commission's Rules Regarding Installment Payment Financing For
Personal Communications Services (PCS) Licensees (WT Docket No. 97-82)
On a fateful day in March of 1997, the Commission's Wireless Telecommunications Bureau -- at the
urging of certain C-block auction winners and with all good intentions -- suspended installment payments for
C-block licensees. This action set forth in motion, in my observation, a calamity of sorts that now culminates
in yet another round (hopefully the last) of "March Madness." We are asked to reconsider the prior
Commission's decision from last September which offered measured relief to the successful C-block auction
participants, primarily out of some concern that licenses might get tied up in bankruptcy court should many of
these companies default. I support that prior decision and its rationale.
As I explain more fully below, I also endorse our decision to keep the basic framework established in
our prior order and to reject proposals to radically change the rules of the game. Though I support most of
the modest measures we take here, I believe that more substantial modifications to help a small subset of C-block companies that find themselves unable to meet the original terms and conditions of the auction would
do more harm than good. Specifically, I believe that to do so would severely compromise the prospects for
both existing and future small businesses and other designated entities to raise sufficient capital to compete
effectively in the marketplace.
The C-block was established out of a recognition that small businesses and entrepreneurs, including
minorities and women, faced particularly difficult challenges in raising sufficient capital to compete at auction
for spectrum and for financing their eventual build-outs. The rules were designed to ensure a fair opportunity
to obtain spectrum (by segregating a block and holding it out exclusively for these interests) and to provide
more lenient, below-market payment terms to ease the burden of raising capital to bid for spectrum and to
finance build-out. In hindsight, one might question the financing terms in light of their unintended
consequences, but they were nonetheless the rules of the game established for all to abide by.
Rules, by their very nature, will always be both over-inclusive and under-inclusive. That is, they
benefit some they really should not, and they will disadvantage others that should benefit. The virtue of any
rule, however, is that it provides a degree of certainty and clarity. Rules should allow all players to
understand the terms and conditions of the contest and to reliably predict the results of complying or failing to
comply with them. In the context of an auction, relying on the established rules allows participants to
evaluate the consequences of their bids -- bid too high and fail to make a payment and you will forfeit your
(or your investors') money and lose your license, bid to low and you risk losing the opportunity to hold a
lucrative license. In the C-block auction, all participants made these difficult decisions all along the way --
some dropped out, some stayed in. The risk assessments and decisions that each participant made were
anchored in the terms and conditions of the auction as well as their vision of the future market. As long as the
rules were clearly established, the participants could make their own judgments about their risk tolerance,
then knowingly face the consequences of their judgments and be held responsible in the event of market
failures.
When the referee (in this case, the Commission) starts tinkering with the rules during the game, or
worse after the buzzer has sounded, it does two very unfortunate things: First, it undermines the fairness of
the contest. This we know from the earliest age and the principle is echoed on ball fields and gymnasium
floors, in olympic arenas, during board games, and even in politics. The cardinal principle is that whether the
rule is good or bad it must apply equally to all players or the game is patently arbitrary and unfair and the
outcome invalid. There assuredly are always those that support the referee's intervention, because the
resulting changes put them on top, or keep them in the lead. However, there are others that sit back in the
locker room stunned and dismayed that the rules, advertised as conditions for victory, were changed to
accommodate certain players. Second, and most importantly in my mind, is that by telegraphing to the world
that the game is subject to unpredictable changes in the rules based on the subjective decisions of the
tournament organizers, you discourage people from playing the game at all.
If we constantly adjust our rules to "help" certain players, no matter how sympathetic their plight, we
run the very severe risk of foreclosing future opportunities for this very class of players to enter, and compete
effectively, in future games. Most telecommunications contests require money to enter and more money to
win. It is difficult enough for small, often unproven, companies to raise funds because of the risk associated
with their ventures. The Commission should not, by waxing and waning on the regulatory structure, make it
more difficult by adding to the uncertainty. If we demonstrate that we are an unreliable referee, capital
markets will be unwilling to take the additional risks associated with the regulatory uncertainty that befalls a
process by which the rules can be altered at any time based on the sympathies that happen to win the day .
There are acute risks associated with the type of ventures C-block was designed to help, over which
regulators have no control, but which are key risk factors for potential investors. This heightens my fear of
tipping the risk scale against these companies. It should be remembered that to investors, the entities now
seeking our help are inherently risky ventures to begin with. Often their management is less proven, their
business plans are untested and less complete, and their optimism is sometimes overstated. This is before
consideration of the stiff competition such entities will face in the marketplace if they do win a license in an
auction. The additional risk we introduce by demonstrating that our rules are not truly reliable may be more
than investors can bear. I sincerely question whether the events of the past and even the little bit we offer to
parties in financial distress today is worth the further damage we may do to the risk calculations of investors
tomorrow. The sad result being that the very class of people we hope to help now will be left short later.
This Order provides a number of measures I fully support, for they should provide each C-block
licensee slightly more flexibility and, consequently, a fighting chance to attract financing, build-out and
compete. Most of them clean up imperfections in the original order without doing damage to the underlying
principles. In particular, with the added flexibility of the MTA-by-MTA choice of options, we have taken
away the artificial and unnecessary nationalization of the C-block "relief" plan. Instead, business plans and
investment pitches can continue despite the circumstances facing these licensees. I must depart from the
majority on one point, however: allowing participants to use certain down-payment "credits" and continue
paying installments.
The prior decision in September made the appropriate cut to allow licensees that have received a
payment respite to spread their payment of accrued interest over two years. This provided a reasonable
deferral of the payments that could be absorbed into a workable business plan. However, the majority is
allowing a portion of the down payments from returned licenses to be used to pay down what is rightfully
owed to the government under binding promissory notes and license conditions. While I do not oppose the
use of "credits" to encourage licensees to prepay their debt and get the FCC out of the banking business, I
object to the idea that such credits can be used to give a boost to certain players with substantial amounts of
accumulated interest. In turn, there will be absolutely no realizable benefit to the American tax payers. From
a lender's point of view (which we unfortunately have to take on behalf of the United States), I do not believe
that this is "commercially reasonable:" it will more likely just delay the inevitable for some licensees, provide
free pocket money for key investors and principals, and not have any guaranteed positive affect on build-out
investment. If credits are available to licensees that disaggregate, I would prefer that such credits be limited
to prepayment of principal instead of this temporary, partial reprieve that really will not help as much in the
short term as it will hurt in the long term.
Some believe that efficient spectrum management counsels that it is better to keep as many of the
present winners moving forward, rather than incur the additional administrative expense and risk of
reclaiming licenses and re-auctioning them. Perhaps, but that is not what we advertised to the original
bidders, many of whom dropped out of the auction confident they would get a second bite at the apple if and
when the high bidders failed. Furthermore, it seems to me that this belief as applied precipitously devalues
auction integrity and its impact on future auctions, and has no principled limits to constrain our subjective
benevolence.
I should make one final point. Last summer, it is my understanding that many parties invoked the
fear of bankruptcy in developing options and arguments, but in reaching today's decision I heard very little
discussion whatsoever about more impending bankruptcies. I did not hear anyone argue that the changes we
make today would truly lessen that troubling possibility for the bulk of the licensees. And, I heard very little
compelling evidence that the threat, whatever it may have been, is any more likely today than it was in
September when the Commission first offered a number of options. Let me be clear that I too am anxious to
see the C-block winners survive and provide an important source of competition, but not in a manner that will
foreclose real opportunity for such groups in the future. Indeed, I expect to continue to hear about more C-block success stories than failures.
At least, however, the regulatory game is over. The buzzer has sounded. The time has come to
compete in the marketplace, not the bureaucracy. There can be no more regulatory meddling, or horse
trading. We must provide certainty, now, lest we win the battle only to lose the war.
Separate Statement of Commissioner Gloria Tristani
In the Matter of
Amendment of the Commission's Rules Regarding Installment Payment Financing for Personal
Communications Services (PCS) Licenses
Order on Reconsideration of the Second Report and Order
I am heartened that the Commission has agreed to a package of fair, reasonable, and commercially
viable options addressing the financial issues confronted by C block licensees. And I am hopeful that the
majority of licensees will find among these options the flexibility to pursue their business plans as they best
see fit. I am satisfied that the Commission has done virtually all that it can to provide C block licensees
flexibility and relief consistent with and required by our overriding mandate to manage the spectrum in the
public interest, and so I join the majority's decision. I write separately, however, to articulate the fundamental
principles guiding my decision. Those principles would have led me to support greater relief in the treatment
of the down payment credit.
In granting the Commission authority to assign spectrum licenses by auction, Congress directed us to
use that authority for the ends of promoting the development and rapid deployment of new technologies and
services for the public, facilitating economic opportunity for designated entities and new entrants, and
vigorously fostering competition. I take these directives as the lodestar of my decision.
Much has been written about the need to protect the integrity and fundamental fairness of our
auctions. With this, I fully agree. But I also believe that when the Commission acted last September, it was
generally acknowledged that a significant number of C block licensees, holding licenses covering a majority
of the United States, were in financial distress. The financial difficulties of several of the largest licensees
cast shadows of doubt across many of the smaller licensees because of the largely interdependent nature of
the licenses as building blocks for a nationwide network.
Recognizing the severity of the problem, and its responsibility to assure that this spectrum is used in
the public interest, the Commission appropriately decided last year to modify its rules to provide licensees
with modest, but tangible, relief. By offering relief through a public notice and comment rulemaking, we
have been able to uniformly address the rights of a class of licensees without undermining the integrity of our
auctions program.
Some commenters and licensees would have us go further -- to discount and restructure their debt,
much as an ordinary commercial lender might. Yet the Commission is not a commercial lender, and we are
confronted by competing policies as we negotiate a path as both lender and regulator. In our role as spectrum
manager, it is not appropriate for the Commission to assure the success of any class of licensees. C block is
an entrepreneurs' block. The truth is that entrepreneurs and small businesses do fail. And they fail at a rate
greater than other businesses overall. So it would be inadvisable for the Commission to tie its spectrum
management policy to the assured success of any group of licensees; to seek to avoid bankruptcies at all
costs; or to become an apologist when such bankruptcies do occur. Fairness to all auctions participants
requires that we not adopt measures that would significantly alter the financial obligations that the successful
bidders themselves freely assumed at auction. But we can, and should, give them the opportunity to survive
and thrive.
Today's decision provides that opportunity by granting licensees significant flexibility to modify their
holdings in light of market conditions and business plans. We have upheld the Commission's original
decision to provide a variety of options, recognizing that no single option would be appropriate for all. The
character of the relief offered is to allow licensees to surrender a certain amount of spectrum in exchange for a
proportionate reduction in debt. In addition, we offer further flexibility, so that licensees may adopt different
options in different regions (on a MTA basis), as well as combine prepayment and disaggregation.
Inherent in this approach is a focus on whether the licensee chooses to use or relinquish the spectrum
it currently holds. Having decided to grant licensees this relief through flexibility, I believe that the use or
non-use of the spectrum should remain the central point in structuring the relief options. Such a view is
constructive and forward-looking, rather than focusing on whether certain licensees willfully overbid, or
inadvertently overbid, or whether they overbid at all. Such past actions of any individual licensees become
irrelevant, I believe, in light of our affirmation of the Commission's decision to offer comprehensive relief and
flexibility to all licensees.
Centering on whether a licensee intends to use its spectrum to provide service to the public, or
whether it plans to return it, my approach would lead to a different treatment of the licensee's 10% down
payment on deposit with the Commission. I do not disagree that it is appropriate for some small fee or cost
to be associated with the abandonment of spectrum previously bid for, whether surrendered in a 30 MHz or
15 MHz portion. I join the majority's view that 3% of the net bid (equal to 30% of the down payment), which
it adopted for most of the options, is appropriate. However, I view this cost as akin to fee for restructuring,
much as a commercial bank might impose. It acknowledges the cost of the restructuring, and is in exchange
for the benefits of relief from a substantial portion of debt and the creation of an automatic spectrum market
(in the case of disaggregation), or the opportunity to hold an unencumbered license (in the case of
prepayment). But 3% of the net bid, or 30% of the down payment, also is minimal enough not to act as a
disincentive or a penalty for a licensee making a choice which the Commission has otherwise freely offered. I
would not view this cost as a "deterrent to speculative bidding," which is a redressed description of a penalty
for past behavior.
This cost should be associated only with the abandonment of the spectrum. The licensee would
forfeit 30% of the down payment that relates to the spectrum it chooses to return, whether as a whole 30 MHz
license (under the pure prepayment option) or 15 MHz piece (under either disaggregation option).
Correspondingly, the licensee would retain 100% of the down payment that relates to the spectrum it chooses
to keep. Critically, licensees are not penalized to the extent that they choose to go forward with providing
service to the public. This approach -- focusing on the use of the spectrum -- is consistent with our spectrum
management responsibilities, as expressed in Section 309(j), to promote service to the public, provide
opportunity for new entrants, and foster competition.
Basing the fee on the amount of spectrum returned results in varying credits of the down payment.
Licensees would receive a 70% credit for a full license returned under the prepayment option, while receiving
85% credit for a license disaggregated, whether then prepaid or continued on installment payments. Some
suggest that the lack of parallel treatment is a problem -- that each license should be subject to the same fee,
whatever option is chosen. But the size or design of a license is itself arbitrary, as acknowledged by the fact
that the Commission has either adopted or proposed spectrum partitioning and disaggregation rules for the
majority of commercial mobile radio services. A cost per license would be a cost merely to participate in the
choices we offer. That analysis is more characteristic of a bank, less a manager of the spectrum.
Likewise, today's Order suggests that we should provide greater incentives for licensees to select the
prepayment option, because it has the effect of removing the Commission from the banking business. I
believe this analysis has two flaws. First, any modification to the credit of the 10% down payment will affect
a licensee's choice of prepayment marginally, if at all. A decision to prepay will be made on the overall
economic costs and benefits to the licensee. Although prepayment may be a good option for some --
particularly those able to obtain down payment credits for the surrender of other licenses -- for others it will
not, because it does not account for loss of government financing substantially below their cost of funds in
the private market. Because the installment payment plan was offered at the government's cost of funds, a
prepayment option discounted to the licensee's higher cost of funds would not be economically neutral to the
government. For that reason, and because such a discount would fundamentally change the terms under which
these bidders won (and others lost) these licenses, I agree with the decision not to discount the debt.
Nonetheless, I believe we must recognize that such a decision affects the overall economic attractiveness of
prepayment. A modest tinkering with the credit of the down payment to lessen the credit for disaggregation
with resumption of payments, and to increase the credit for disaggregation with prepayment, will not affect
that balance.
In addition, for C block the decision for the Commission to serve as a banker is over. That decision
was complete with the adoption of service rules. Whether prepayment is a good option for some, we will the
remain banker for many. Though I agreed with our decision in the recent Part 1 Report and Order to
temporarily suspend the use of installment payments in future rulemaking proceedings, I do not believe we
should distinguish the cost of an option based upon whether it minimally reduces our banking role for this
service.
Thus, I would offer an 85% credit for any licensee choosing the disaggregation option, whether
prepaying or continuing on installment payments. I would not tinker with the calculation of the down
payment credit, merely to make disaggregation with installment payments cosmetically equal to standard
prepayment, or to make disaggregation with prepayment more attractive than disaggregation with installment
payments. It is easier -- and more in the public interest -- simply to ask whether the licensee is choosing to
serve the public by making use of the spectrum. Despite these decisional differences, I am pleased that the
majority is able to support use of 85% of the down payment for at least one of the disaggregation options.
There is an additional area where I believe we provide important and useful flexibility. This is the
modification to allow licensees to apply to the down payment credit either to reduce principal or to apply
against accumulated suspension interest. Suspension interest is, in effect, a past debt. It has accumulated
because the Commission, by Bureau Order, suspended payments pending resolution of this proceeding.
Allowing application of the credits to suspension interest will provide licensees modest relief from the burden
of paying both past and current interest simultaneously. At the same time, we do not defer current debt. To
take advantage of this option, licensees must be timely on all current interest, making a showing of financial
viability.